NEW YORK – Consumers are unsure about much these days and that plays a big role in stifling the economy, and it’s a trend that policymakers may not have the tools to resolve, according to Federal Reserve Bank of Minneapolis President Narayana Kocherlakota.
“I believe that overall uncertainty is a large drag on the economic recovery,” he told the Sioux Falls Rotary Monday, according to prepared text of his speech, which was released by the Fed. Kocherlakota said great uncertainty about the next five years, “some of it is intrinsic to the structure of the U.S. economy itself,” dictates this hesitation by consumers.
The housing and labor markets are major areas of uncertainty, “but part of the public’s uncertainty has to do with the nature of future taxes and government spending,” he said. “The federal debt in the hands of the public has gone up by over 50 percent over the past three years. At the same time, the U.S. government has taken on responsibilities for the debts of Fannie Mae and Freddie Mac. It has enacted a new health care plan. Do these changes mean that taxes will rise? If so, taxes on what forms of economic activity? Does it mean that government will cut back on its provision of important types of public goods or on entitlement programs? If so, what kinds of public goods or entitlement programs? Investors and savers need a lot more clarity about what those answers might be. Absent such clarity, the economic recovery will be slower than it otherwise would be.”
He noted, “I don’t have the answers to these and other questions about long-run economic policy.” Kocherlakota said, “My own assessment is that no policymaker or set of policymakers—no matter how gifted—has the tools available to resolve these uncertainties."
