Federal Reserve Bank of Minneapolis president Narayana Kocherlakota warned Tuesday that even though inflation is "relatively tame" now, the large volume of excess bank reserves creates "the potential for high inflation" if the Fed does not make "good policy choices."

At the same time, Kocherlakota was pessimistic about the economic outlook, particularly with regard to unemployment, saying he would be surprised if it drops below 9% by the end of this year or below 8% by the end of next year.

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