The credit squeeze in the US economy is likely to persist for many months and might even get worse, Gary Stern, president of the Federal Reserve Bank of Minneapolis, has told the Financial Times.

He said that with interest rates at 2 per cent the Fed was well-placed to cope with any negative surprises on growth. By contrast, he said, it was not as well positioned to deal with any negative surprises on inflation.

Even without any such surprises, the Minneapolis Fed chief also said real interest rates were at levels that, if sustained for too long, would not be compatible with medium-term price ­stability.

Either inflation expectations would have to decline, or the Fed would have to raise interest rates, or both, in order to achieve the required tightening in real rates. However, Mr Stern emphasised the need for the Fed to balance unease about the low level of real interest rates with risks to growth.

There was no suggestion that he thought the central bank should start raising interest rates in the very near future, in the absence of a further negative surprise on inflation.

Mr Stern, the longest serving member of the FOMC, said: "I don't think the headwinds have diminished. In fact if anything I think they are picking up a little steam."

He said the economy was set for a protracted period of weakness similar to that of the early 1990s. Growth "over the next several quarters is unlikely to depart significantly on average from the average of the three previous quarters" - roughly 1.5 per cent.

Yet while the fading of the fiscal stimulus could result in a short-term setback to growth, the underlying rate of consumer spending was likely to be resilient, he said.

"I think we are reasonably well placed for some disappointments in the next two or three quarters in terms of growth, because in some sense we have addressed that through policy," Mr Stern said. "In my own mind it is a little bit more of an open question on inflation."

The inflation risk could be broken down into two components. First, there was the risk that high rates of headline inflation, driven up by oil and food prices, could become embedded in inflation expectations.

Second, there was the danger that the current level of real interest rates, if sustained for too long, would not be compatible with medium-term price stability.

"Headline inflation is rapid, too rapid," he said. However, core inflation and inflation expectations were "better behaved". He said he thought inflation expectations were "reasonably well anchored" and was "modestly confident" that they would stay that way.

He admitted that he was uneasy about keeping real rates so low at a time of high headline inflation. "It does concern me. There is no question about it. All I can say is that it is a challenging policy environment."

Mr Stern said he would be "quite encouraged" if oil - which has fallen roughly $20 from its peak - stabilised, as that would over time result in headline inflation easing back towards the lower core rate. "Would I be satisfied?" he said. "That is another question."

Inflation expectations were probably "at least half a percentage point above" the current Fed funds rate of 2 per cent, he said, suggesting that the real interest rate was minus 0.5 per cent.

Taking into account the financial headwinds, the effective real rate was "zero or not much above zero".

"For price stability purposes - which, by the way, means in the long run for the achievement of both parts of the dual mandate - real rates need to be above that. So for that to occur, either the rates need to go up at some point and/or inflation expectations need to decline."

Mr Stern said his assessment of the outlook was not "materially different" from his evaluation at the time of the last Fed policy meeting on June 30.

He said there had not been a significant increase in the the tail risks of a very bad economic outcome that he continued to believe were "still with us" but "diminished relative to March".

He thought there was an "adequate" level of slack in the economy, such that if growth turned out to be stronger than expected it would not immediately result in overheating.