Soft growth will keep employment weak: Fed's Kocherlakota

WASHINGTON Thu Jan 10, 2013 8:07pm EST

WASHINGTON (Reuters) - The economy will continue to grow too slowly to make significant progress in bringing down unemployment, Minneapolis Federal Reserve Bank President Narayana Kocherlakota said on Thursday.

Kocherlakota predicts U.S. gross domestic product will grow at an annual pace of 2.5 percent this year and 3 percent next year, estimates that put him on the weak end of Fed policymakers' forecasts.

"This growth will do little in terms of returning the economy to the historical trend," Kocherlakota said in prepared remarks to a Minneapolis Fed event. "Consistent with this slow output growth, I expect unemployment to continue to fall only slowly."

The unemployment rate, currently at 7.8 percent, should fall to around 7.5 percent towards the end of this year and 7 percent in 2014. This will prevent wages from rising very quickly and keep inflation at bay.

Kocherlakota sees the Fed's preferred inflation measure remaining below the central bank's official 2 percent target over the next two years.

(Reporting By Pedro Nicolaci da Costa; Editing by Eric Walsh)

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