WASHINGTON — Federal Reserve Bank of Minneapolis president Narayana Kocherlakota said Thursday that the economy is still being restrained by dual “headwinds” and doubted whether there will be much improvement in the labor market this year.
Kocherlakota, a voting member of the Fed’s policymaking Federal Open Market Committee, did not address the outlook for monetary policy but he has recently called himself “very comfortable” with current monetary policy.
“Even with the December changes in fiscal policy, I would say that I expect that real [gross domestic policy] growth will probably be closer to 3% than 4% in 2011,” he said.
Kocherlakota, in remarks prepared for delivery at the University of Minnesota in St. Paul, said he “still sees two major headwinds in the U.S. economy.”
“The first is that many households will continue to strive to rebuild their net-worth positions in response to past — and possibly future — falls in residential land prices,” he said. “I believe that the decline in household net worth, precipitated by falls in land values … will remain important in the recovery.”
“The second headwind is related,” Kocherlakota said. “Many banks in the United States face ongoing issues with asset quality.” The Federal Deposit Insurance Corp. problem-bank list contains over 800 banks, he said.
— Market News International