Romer: Impact of Stimulus Will Level off Next Year
Christina Romer, the chair of President Barack Obama's Council of Economic Advisers, said the initial jolt of the $787 billion stimulus expanded the economy in the second and third quarters of this year. But she said the remaining spending will simply keep the economy from slipping.
"By mid-2010," she said, "fiscal stimulus will likely be contributing little to further growth."
That assessment underscored the fragility of an economic recovery marked by stubbornly high unemployment.
Romer said the government has already spent $194 billion of the total stimulus package, most of it in tax cuts, aid to states and unemployment and food stamps. In addition, she said, $146 billion of spending had been already obligated.
Romer, testifying before Congress' Joint Economic Committee, said that as of August the stimulus had created or saved 600,000 to 1.5 million jobs. She said a premature end to the stimulus would be "misguided."
"This is not a normal recovery," she said. "Coming out of this, we've got lots of things working against us," she said.
Unemployment will remain high, at or above 9.6 percent, through the end of 2010, Romer predicted.
"While job losses will likely end early next year, robust job gains may still be several quarters away," she said.
The pace of the recovery and the unyielding jobless numbers pose significant political and policy problems for the president and for congressional Democrats who face midterm elections next year.
The administration and Congress are confronting competing demands to spend more money to create additional jobs and a desire to confront rising deficits and a burgeoning national debt.
Republicans were skeptical of Romer's claims of stimulus success.
"The impacts of the stimulus are wildly exaggerated," said Rep. Kevin Brady, R-Texas.
Sen. Sam Brownback, R-Kan., said the administration's push for health care and climate change legislation have also created uncertainty among employers who worry about tax increases and are thus unwilling to take risks that could create jobs.
Romer said the Federal Reserve and the Treasury Department are keeping a wary eye on commercial real estate lending, an area that economists and financial experts predict could be the next crisis to befall banks, particularly smaller community institutions.
Romer said that unlike the housing market crash that brought Wall Street to the edge of collapse last year, the troubles facing commercial real estate are "a slower evolving problem; one that we will have the time and ability to deal with."
In testimony to separate panels, Romer and Assistant Treasury Secretary Herbert Allison also credited the government's $700 billion banking rescue fund for pulling the financial sector back from a free fall. The program, known as the Troubled Asset Relief Program, injected billions of dollars into large financial institutions and into the auto industry and has become increasingly unpopular with Congress and with the public.
At the same time, the president has been under pressure from Democrats to use the rescue money to help homeowners facing foreclosure and to assist small businesses. Republicans have called on the administration to simply end the program upon its scheduled expiration Dec. 31.
Without saying that the program will be extended, Allison told the Congressional Oversight Panel that acts a a watchdog over TARP: "It is time to set a new direction for the TARP, to account for the recent improvements in capital markets and to address lingering weaknesses in housing markets and small business lending."