Kansas Fed President Thomas Hoenig said the Federal Reserve's response to the U.S. credit crisis has threatened its ability to keep inflation under control.

Speaking on the financial turmoil at a conference in Buenos Aires, Argentina, Hoenig said combating inflation is the Fed's key mandate, and added that the Personal Consumption Expenditure rate of core inflation has been "above most definitions of price stability" for the past four years.

"The current stance of policy, while understandably calibrated for responding to the immediate financial crisis, will make it difficult to achieve our mandate for price stability over the longer term," Hoenig said in prepared remarks.



Part of the Fed's aggressive response to the credit crisis was to allow non-banking institutions to borrow from its discount window.

Hoenig said any non-bank institutions that use the discount window should immediately come under Federal Reserve oversight.

He also said the market works best when individual institutions are allowed to fail, and suggested the Fed continue to pursue market transparency and enhanced corporate governance.

By Stephen Huebl