Fed Governor Says Market Recovery Will Be ‘Relatively Gradual’

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The governor of the Federal Reserve, Randall Kroszner, said a recovery in credit markets at the heart of recent turmoil will be “relatively gradual” as investors improve information and expertise to value complex securities. “The recovery may be a relatively gradual process, and these markets may not look the same when they re-emerge,” Mr. Kroszner said in a panel discussion in Washington. “The investment in data, modeling, and assessment will take time.”

The remarks on securities such as collateralized debt obligations may reflect the views Mr. Kroszner will bring to the Federal Open Market Committee’s next meeting October 30–31. Investors are betting that the central bank will follow September’s surprise half-point interest-rate cut with a quarter-point reduction after market turmoil resurfaced last week.

“In the months ahead, the Federal Reserve will continue to monitor developments in the financial markets and act as needed to support the effective functioning of these markets and to foster sustainable economic growth and price stability,” Mr. Kroszner told the Institute of International Bankers.

While Mr. Kroszner didn’t specifically refer to last week’s resurgence in financial turmoil, he did say that investors expect “pressures” in some markets to “persist for several quarters” based on current information.

While actions by the Fed to increase liquidity “appear to have improved market functioning,” Mr. Kroszner said some “strains” in markets “persist even now.”


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