Nov. 4 (Bloomberg) -- A rising threat of inflation earlier this year ``froze in its tracks'' in recent months as the credit crisis worsened, Federal Reserve Bank of Dallas President Richard Fisher said.

``The impetus for rising prices came to a grinding halt as the credit crisis took grip and confidence evaporated,'' Fisher said today to a meeting of the Texas Cattle Feeders Association in Grapevine, Texas. ``As the credit market congealed, inflationary momentum froze in its tracks.''

Fisher and other members of the Federal Open Market Committee cut the benchmark interest rate last week to 1 percent, trying to prevent a downturn in bank lending and consumer spending from triggering a global recession. He had dissented five times in prior meetings because of concern about inflation.

Plunging commodity prices, including a 55 percent decline in the cost of oil since July, have eased inflation pressures. ``I don't believe we are likely to have sustainable deflationary impulses,'' Fisher told reporters after his speech.

While cutting the main rate during the past 13 months from 5.25 percent, Fed Chairman Ben S. Bernanke has created six loan programs channeling at least $700 billion in cash and collateral into money markets as of Oct. 22.

``There are limits to what the central bank can do,'' Fisher said. ``Complementary action must now be undertaken by the fiscal authorities,'' including the new president to be elected today.

The Fed's efforts to unlock short-term credit markets, including buying debt directly from companies, showed signs of working, as interest rates on U.S. commercial paper fell today to the lowest in four years.

Supporting Banks

The Fed's balance sheet may expand to $3 trillion by year's end, reflecting growth of various liquidity measures supporting banking institutions, Fisher said. As of Oct. 29, the Fed's balance sheet was $1.97 trillion.

Still, the U.S. faces ``an epic challenge,'' Fisher said. ``We are navigating the mother of all financial storms.''

The U.S. economy shrank at a 0.3 percent annual rate last quarter, the most since the 2001 recession, the Commerce Department reported last week. Economists expect the slump to worsen in the fourth quarter.

A recovery in the U.S. economy ``will take time,'' Fisher said in response to an audience question. ``I don't see any economic growth in 2009. None.''

During the current quarter the U.S. is ``likely to have negative growth,'' he told reporters.

Labor Department figures are expected to show a drop of 200,000 jobs in October, according to a Bloomberg News survey of economists. A report showed Oct. 3 that payrolls fell by 159,000 in September, the biggest drop in five years. The unemployment rate held at 6.1 percent, up from 5 percent as recently as April.

The central bank has ``lowered interest rates dramatically'' and ``we are doing our best to try to instill a simple measure of confidence.''

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Margot Habiby in Dallas at mhabiby@bloomberg.net

Last Updated: November 4, 2008 13:17 EST