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Kovacevich: US would have a 3% economy if we had the right policies

The U.S. economy should be growing much faster, but the country has the wrong mix of fiscal and monetary policies, Richard Kovacevich, former chairman and CEO at Wells Fargo, said Friday.

"We should be growing at 3 percent, given the difficulty of this last recession," he told CNBC's "Squawk Box." "We always get a higher and faster recovery from a tough recession, and this is the slowest ever, and I think it's the policies that are coming out of Washington DC that are causing this."

The U.S. government said Friday the U.S. economy contracted 0.7 percent in the first quarter of 2015 in its second reading of GDP. The first reading showed the economy grew 0.1 percent.

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Kovacevich said small businesses are suffering from a mix of corporate taxes, health care reform and regulation. As a result, small businesses have not led the recovery as they have in the past, he added.

"The real problem with regulation is it really helps large companies. Large companies can deal with regulation. It's the high fixed cost that hurts small companies even more," he said.

He continued to say small business owners put regulation ahead of higher taxes when ranking issues that create problems for their companies in Wells Fargo surveys.

The Dodd-Frank bank reforms in particular have "killed" small banks, Kovacevich said. Rather than investing in sales staff companies are allocating more money to technology and compliance costs. Wells Fargo alone employs about 10,000 people in compliance-related positions, he added.

"It's absurd that we are investing that kind of money on compliance that, in my opinion, is way over the top," he said.

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As for monetary policy, the Federal Reserve is removing the incentive for businesses to take risks by pushing an interest rate hike into the future based on perceived weakness in the economy, Kovacevich said. The central bank has held its benchmark rate near zero since December 2008.

"Why don't we just do the quarter percent, get it over with, and now let's talk about how we can grow this economy at 3 percent instead of being worried about all these devils?" he said.