Fed's Fisher Says All Options Weighed to End Crisis

By Steve Matthews and Scott Lanman

Oct. 12 (Bloomberg) -- The Federal Reserve will consider all policy options necessary to stabilize financial markets and limit damage to the economy, said Richard W. Fisher, president of the Dallas Fed bank.

``We can and we will restore order to the credit markets,'' Fisher said during a panel discussion sponsored by the Institute of International Finance in Washington. He said the U.S. faces a period of ``negative growth'' and pledged that the Fed would do ``whatever'' is necessary to ease strains on markets and the economy.

Fisher didn't offer details on what options may be under consideration. He said he was breaking from Fed officials' public-speaking tradition of not talking on behalf of the entire policy-making Federal Open Market Committee.

``This morning I am casting that convention aside,'' he said. ``I speak for all of us when I say that the Federal Reserve will continue to explore every avenue and consider every option to see the credit markets through the credit crisis.''

The Fed, the European Central Bank and other central banks lowered interest rates last week in an unprecedented coordinated effort to ease the economic effects of the freeze in credit markets. Fisher voted for the policy change after dissenting as recently as Aug. 5 against holding the benchmark rate unchanged in favor of an increase because of inflation concerns.

The Fed reduced its benchmark rate to 1.5 percent. Traders anticipate another quarter point cut by the Federal Open Market Committee's Oct. 28-29 meeting.

Capital Injections

Fisher said policy makers must work in concert to address the strains in the financial system.

Treasury Secretary Henry Paulson is planning government investment in banks to help replenish depleted capital. The Treasury is also recruiting asset managers and other staff to carry out a $700 billion rescue plan approved by Congress, which will be administered by a newly formed Office of Financial Stability in the Treasury's headquarters in Washington.

Fisher said federal support for the banking system will help economic growth to resume. Paulson, the Congress and other officials will ``will engineer an appropriate recapitalization of the banking system in a manner that does not kill the goose that lays the golden eggs of the practice of capitalism,'' Fisher said.

The Fed is facing increasing evidence that the U.S. is close to or already in a recession. Labor Department figures showed Oct. 3 that payrolls fell by 159,000 in September, the biggest drop in five years. The unemployment rate held at 6.1 percent, up from 5 percent as recently as April.

Fisher said the turmoil may lead to ``sub-par and even negative growth for some time possibly into 2009.''

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Scott Lanman in Washington at slanman@bloomberg.net