UPDATE 2-Fed won't let market upset become calamity - Poole
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WASHINGTON, Nov 30 (Reuters) - The U.S. 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, who is among the officials who will vote on interest rates at the FOMC's next meeting on Dec. 11, said the Fed is careful not to take actions just to shield investors or businesses from losses, but it does strive to ensure economic and price stability.
From time to time the Fed will act to stabilize the economy to cushion it from recession or forestall a crisis in the financial system, Poole said.
"Provided that the central bank does not sacrifice long-term price stability, it can and should respond to new information indicating an increased risk of recession," he said.
Likewise, it is a mistake to believe the Fed aims to support a rising stock market with its actions, although it would not refrain from acting if policy adjustments had the effect of boosting stocks, Poole said.
"It is a fundamental misreading of monetary policy to believe that the stock market per se is an objective of policy," he said, disabusing the notion of a "Fed put" that protects investors.
"It is also a mistake to believe that a policy action that is desirable to help stabilize the economy should not be taken because it will also tend to increase stock prices." (Reporting by Mark Felsenthal; editing by Neil Stempleman)
