Stern-Fed moves to unlock credit markets over time

CHICAGO, Oct 7 (Reuters) - The Federal Reserve's recent steps to unlock global funding markets should succeed over time in solving "a bear of a problem," Minneapolis Fed President Gary Stern said on Tuesday.

Speaking to the Council of Institutional Investors, Stern said the Fed must deal with the crisis at hand and turn to the issue of moral hazard created by a string of bank bailouts when conditions are more settled.

"You want to address 'too big to fail' when financial conditions are cranking," he said.

Higher budget deficits likely to be created by the Treasury's costly bank rescue plan will not necessarily lead to higher interest rates, Stern said. (Reporting by Ros Krasny; Editing by James Dalgleish)