Fed Cannot Let Freddie and Fannie Fail
Speaking in an interview with Bloomberg TV, Minneapolis Fed president Gary Stern said:
• The Fed faces a “challenging environment” on rates
• Inflation remains uncomfortably elevated, but is likely to fall in the next few month
• Stern sees “sluggish growth” over the next several quarters
• Stern sees most financial firms as “reasonably healthy,” but sees a risk of exaggerated negativity as a result of the credit crunch
• The Fed must “contain spillovers” in the market place, and that the to-big-to-fail issue must be addressed during calmer market conditions
• Stern says Freddie and Fannie, like Bear Stearns, cannot be allowed to fail
• The Fed is looking at banks exposure to GSEs
• Fed’s GSE backstops “fully appropriate”