Consumers face challenges: Fed's Kroszner

By Ros Krasny

BALTIMORE (Reuters) - U.S. consumers face many challenges as equity price falls hit retirement accounts and home values suffer big losses, Federal Reserve Governor Randall Kroszner said on Monday.

Given this "negative wealth effect," Kroszner said it was "important to think about what the government can do to support economic activity," which is heavily dependent on the pace of retail spending.

Answering questions after a speech to the Risk Management Association meeting in Baltimore, Kroszner fell short of endorsing a second federal stimulus plan to help the U.S. economy overcome the effects of the global financial crisis.

Earlier on Monday, Fed Chairman Ben Bernanke threw his support behind a second stimulus plan in remarks to a congressional panel.

The initial series of tax rebate checks mailed to millions of Americans in the spring gave retail spending a shot in the arm that has since faded. Retail sales fell 1.2 percent in September, their largest monthly decline since August 2005.

Kroszner did not comment on the outlook for interest rates in his prepared remarks, which focused on the likely fallout from the biggest financial crisis since the Great Depression.

Financial markets are confident the Fed will lower interest rates again at its next monetary policy meeting on October 28-29, most likely by one-quarter percentage point to 1.25 percent.

Kroszner said the Fed would use all its tools to "improve market functioning and liquidity, to reduce pressures in key credit and funding markets, and to complement the steps the Treasury and foreign governments will be taking."