Fed won't let market upset become calamity: Poole

By Mark Felsenthal

WASHINGTON (Reuters) - The Federal Reserve would not hesitate to act to prevent financial strains from damaging the economy and any steps it does take are not made to shield investors, a top Fed official said on Friday.

"The Fed does not have the desire or tools to prevent widespread losses in a particular sector but should not sit by while a financial upset becomes a financial calamity affecting the entire economy," St. Louis Federal Reserve Bank President William Poole said at a conference sponsored by the Cato Institute.

"Whether further cuts in the fed funds rate will alleviate financial market turmoil, or risk adding to it, is always an appropriate topic for the (Fed's policy-setting Federal Open Market Committee) to discuss," he said.

Poole's comments appeared broadly in sync with comments made earlier in the week by Fed Chairman Ben Bernanke and Fed Vice Chairman Donald Kohn, who indicated openness to further rate cuts.

Poole, who is among the officials who will vote on interest rates at the FOMC's next meeting on December 11, said he would not let concerns about "moral hazard" prevent him from backing further cuts in benchmark Fed interest rates.

Moral hazard is a concept that markets might take greater risks on the belief that government policy would protect them from suffering losses.

"I would not want people in the markets to believe that I, at any rate, would be so concerned about the moral hazard argument that I wouldn't possibly advocate a 25 basis point or a 50 basis point cut, or whatever might be on the table," Poole told reporters after his speech.

DIVERSE VIEWS AT FED