Action did not bail out investors: Fed's Hoenig

WASHINGTON (Reuters) - Central bank action spurred by the U.S. subprime mortgage crisis did not bail out investors but policy-makers must still be aware that their decisions have consequences, said a top Federal Reserve policy-maker.

Kansas City Federal Reserve president Thomas Hoenig, in a speech delivered on November 6 in Australia and since posted on the Fed's Web site, dismissed claims that policy-makers had fallen foul of moral hazard by responding to market turmoil.

"I believe that some of this talk is clearly off the mark in the sense that responsible parties are in many cases bearing the fruit of their bad decisions. They are not being 'bailed out', " he said.

"However, there are some deeper issues here that should give us concern," he told a gathering in Sydney on regulatory capital and financial stability. The event was not publicized in advance, and it was not immediately possible to determine when the speech was posted to the Kansas City Fed's Web site.

Hoenig, a voting member of the Fed's interest rate setting committee this year, opposed a rate cut at the U.S. central bank's last meeting, on October 30-31, in favor of leaving rates unchanged. His vote was the sole dissent, and the Fed lowered rates by a quarter percentage point to 4.50 percent.

He did not touch on the future direction of U.S. monetary policy or the economy in his published remarks, but made plain that he was sensitive to the potential impact of policy decisions on financial markets.

"There is no doubt in my mind that financial market participants have taken note of central bank actions and will factor those actions into what they expect in the future.

"So, in this sense, we must recognize that actions that seem appropriate in dealing with the current crisis do have future consequences," he said.

Hoenig stressed that he was not criticizing policy measures taken in time of crisis, and acknowledged that some of the changes might have been very necessary and perhaps should become permanent.

"But such actions have consequences ... I believe that to the extent policy-makers respond effectively to financial crisis, they do alter the behavior of asset prices and default probabilities," he said.

(Reporting by Alister Bull, Editing by Andrea Ricci)