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Fed Steering Economy Toward 2010 Recovery: Kroszner

Unprecedented policy moves from the Federal Reserve helped fend off another Great Depression and should help the economy start to recover next year, former Fed Governor Randall Kroszner told CNBC.

Randall S. Kroszner
CNBC.com
Randall S. Kroszner

"I think we've largely avoided the likelihood of that extreme downside," Kroszner said during a live interview, though he hedged his optimism by saying, "one never likes to say never" regarding the possibility of a sudden downturn.

Consumer savings rates will be a key barometer regarding how soon the economy will recover, he added.

Savings rates been pushed to about 6 percent this year after staying flat or slightly negative during much of the economic downturn. Kroszner said that number will need to stay flat, as increases in savings will indicate that consumers aren't ready to start spending and generating economic growth yet.

"The consumer is likely to feel comfortable roughly in the range that we're in and that could provide the basis for recovery sometime in 2010," he said.

As for Fed policy, Kroszner said the various liquidity measures were critical to keeping the economy afloat. He also said it's important that Fed Chairman Ben Bernanke keep the public informed of what the Fed is doing.

Bernanke held a town meeting near Kansas City over the weekend, an unusual move for a chairman of the Fed bank but one that drew applause from Kroszner.

"Many people think it's very important that the Fed try to be as transparent as possible and try to speak very broadly to various audiences," Kroszner said. "I think what the chairman is doing is taking that seriously in these really extraordinary times when regular people are more focused on the Fed than they otherwise would be."

On another matter, Kroszner expressed skepticism about proposals for universal healthcare as put forth by the White House and under consideration in Congress.

He cited a Congressional Budget Office report that he characterized as "quite compelling" and showing that the costs of the plan and their impact on the economy would be substantial.

"There's a lot of real cautionary tales in there about the costs and what benefits you get from those very large costs," Kroszner said, adding he's "a bit skeptical on the benefits of this program right now."

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