Uncertainty from several fronts will push down gross domestic product growth and prevent a V-shaped recovery, Federal Reserve Bank of Minneapolis president Narayana Kocherlakota said yesterday.
Calling for GDP near 3% this quarter and around 3.5% for the next two years, Kocherlakota said a tax increase is necessary to offset the rise in public debt, bank lending woes furthered by uncertainty over financial regulatory reform, and the crisis in Europe, all of which will all spark uncertainty that will dampen GDP growth.
Turning to the Federal Open Market Committee’s decision at its meeting last month to keep rates low for an “extended period,” Kocherlakota expressed support, according to a text of his remarks to the Eau Claire Area Chamber of Commerce released by the Fed. “As for my own view, had I been a voter, I would have voted in favor of the FOMC statement in April,” he said.
“I do think that readers of the FOMC statement should pay very careful attention to its explicit conditionality,” he added. “The statement says that the committee will raise interest rates if economic conditions change appropriately — whether that’s in three weeks, three months, or three years.”
