Fed's Stern Says Credit Crunch to Last Longer, Could Get Worse

In an interview with the Financial Times over the weekend, Minneapolis Fed President Gary Stern (voter) said the credit crunch in the U.S. would last for several more months and conditions could deteriorate further.

"I don't think the headwinds have diminished," Stern said. "In fact if anything think they are picking up a little steam."

On the other hand, Stern pointed out that the low 2.00% Fed fund target rate should compensate for any downside surprises.

"I think we are reasonably well placed for some disappointments in the next two or three quarters in terms of growth, because in some sense we have addressed that through policy," Stern said. "In my own mind it is a little bit more of an open question on inflation."

The FOMC voting member also expressed concern over mounting inflation pressures in the United States, although he added that the sharp retracement seen in crude oil over recent weeks had been encouraging.

Over the last three weeks, crude oil has lost as much as $25 dollars from record highs see earlier in July.

By Erik Kevin Franco and edited by Nancy Girgis