GOLDEN VALLEY, Minnesota (Reuters) – The Federal Reserve’s interestrate cuts are appropriate to restore stability in financial markets andprevent damage to the broader economy, Minneapolis Fed President GaryStern said on Tuesday.
"Against the backdrop of the financial shocks that have beset theeconomy and their implications for the outlook, the reduction in thefunds rate target appears wholly appropriate," he said in remarksprepared for delivery to the Financial Planning Association ofMinnesota.
The Fed is responsible for restoring financial stability and protecting the broad economy from damage, Stern said.
"Policy is now better positioned to attain these objectives than formerly," he added.
Stern said the current situation is reminiscent of the early 1990s,when the economy faced "headwinds" after the 1990-91 recession,particularly tighter credit and a real estate bust.
"In this environment, we need to remain sensitive to evolvingfinancial conditions and to incoming information on business activityin order to further determine the relevance of that earlierexperience," Stern said.
It is possible that an appreciable tightening of credit conditionscould restrain the economy for a time, the Minneapolis Fed presidentsaid. He expects economic growth to average 2.5 percent a year over thelong run, he added.
Meanwhile, the possibility of a credit crunch cannot be ruled out, he added.
(Reporting by Mark Felsenthal; Editing by Tom Hals)
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