Investors raised Fed awareness of credit crisis

NEW YORK (Reuters) - A meeting between the Federal Reserve and investment firms last month helped build the central bank's awareness of how severe the credit market crisis had become, an executive with T. Rowe Price Group said on Monday.

Mary Miller, director of fixed income at the giant mutual fund firm, said 13 firms that are part of SIFMA, the Securities Industry & Financial Markets Association, met with officials from the Fed, the Treasury and the White House in November. Miller spoke at the Reuters Investment Outlook 2008 Summit in New York.

The meeting appeared to heighten understanding at the Fed that a significant tightening of lending standards since August was beyond merely a Wall Street event, Miller said.

In its statement after the October 30-31 Federal Open Market Committee meeting, the Fed termed the balance of risks for the U.S. economy as "balanced," a view that was quickly overtaken by a fresh round of financial turmoil.

That statement suggested that the Fed "didn't expect to move (rates) in December," Miller said.

Instead, a second round of fallout from the subprime mortgage mess in November will likely force another 25 basis point cut to the federal funds rate this week, to 4.25 percent, she said. The Fed's policy-setting Federal Open Market Committee is to meet on Tuesday.

Fed officials in recent speeches -- including Chairman Ben Bernanke and Vice Chairman Donald Kohn -- have acknowledged that tighter lending standards for businesses and consumers pose a bigger risk to U.S. economic growth.

"The Fed initially saw this as a problem contained to financial markets but have changed their position. I think they're right on top of it," Miller said.

Bernanke is "doing a really good job" and asking market participants a lot of pointed questions, she said.

(For summit blog: summitnotebook.reuters.com/)

(Reporting by Ros Krasny; Editing by Leslie Adler)