Minneapolis Federal Reserve Bank president presents gloomy economic forecast

In his first public speech since taking over as Minneapolis Federal Reserve Bank president, Narayana Kocherlakota Tuesday provided some grim economic forecasts.

He said gross domestic product will grow by 3 percent over the next two years-- less than other Fed presidents' and Fed governors' forecasts. Kocherlakota also projected continued high unemployment for the next couple of years.

When asked whether another federal stimulus package could hold down unemployment, Kocherlakota said policymakers must approach such a task wisely.

"I think as policymakers, we don't necessarily think about the right tool for the job. If you want to increase jobs, well, you should subsidize the creation of jobs by businesses, provide tax credits for that purpose. That would be a directed way to facilitate job growth," Kocherlakota said.

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Kocherlakota said the positive note in his economic outlook is that inflation will likely remain low.

He made his remarks to a gathering of the Minnesota Bankers Association.

Kocherlakota rejected the idea of stripping the Fed of some of its regulatory powers-- a proposal from the chair of the Senate Banking Committee and others.

He said the Fed's actions over the past few years have been pivotal in averting economic catastrophe.

"They kept illiquid-- but solvent-- firms alive during the financial crisis, while letting truly insolvent firms fail. In so doing, these policies eliminated the possibility of a great depression," Kocherlakota said.

Kocherlakota said he favors a U.S. House bill that creates a separate consumer protection agency while still maintaining much of the Fed's supervisory powers.

The president of the Minnesota Bankers Association said he appreciated Kocherlakota's comments but wished he had underscored how many banks avoided the missteps that led to the crisis.