Echoing comments made earlier in the week, Minneapolis Fed President Gary Stern said the U.S. government's bailout plan may create instability in the future.
Delivering remarks on "The Repercussions from the Financial Shock" at an event organized by the National Investor Relations Institute in Minneapolis, Stern said that regulators will have to address the too big to fail issue.
"These actions were fully appropriate against the background of the risks at hand, and it is essential that they succeed, but going forward they will require policies to address spillovers and to reduce the likelihood of full protection of uninsured creditors of large, complex financial institutions," he said.
Stern noted that the U.S. economy does have "underlying flexibility". He also said the U.S. may face higher unemployment and that U.S. consumer spending will decline as a result.
By Steve Stecyk and edited by Stephen Huebl
©CEP News Ltd. 2008