Fed's Warsh: Credit markets healing but still wary

LOUDONVILLE, N.Y., Oct 5 (Reuters) - Federal Reserve Board Governor Kevin Warsh said on Friday that credit markets were on the mend after August's turmoil, but some sectors remained sickly and the Fed was wary of fallout hurting economic growth.

"The functioning of several markets continues to be strained, a condition which I would expect to continue for a while," Warsh told the New York State Economics Association. A copy of his remarks were made available in advance to the media.

"Consequently, my colleagues and I on the FOMC (Federal Open Market Committee) will continue to assess the effects that these and other developments could have on the prospects for the economy. We will rely not only upon economic modeling, but also real-time, forward looking indicators to help inform our policy judgments," he said.

The Fed cut interest rates by a half percentage point to 4.75 percent on Sept. 18 to shield the economy from a global credit crunch that erupted in August after slumping U.S. housing triggered a wave of subprime mortgage defaults.