The Federal Reserve failed to spot the global financial crisis ahead of time, but its aggressive rescue efforts should soon stem the decline in growth, Dallas Fed President Richard Fisher said on Thursday.

It was a rare admission by an official of the Federal Reserve -- the U.S. central bank -- of failure to see that the financial system was heading for trouble.

We must acknowledge that most in the financial community, including those of us at the Federal Reserve, failed to either detect or act upon the tell-tale signs of financial system excess, Fisher told a conference.

Fisher said he hoped the second quarter would see a tempering of the downturn, which in the final three months of 2008 an annualized contraction of 6.3 percent in gross domestic product. He believes the first quarter was just as bad.

In a speech peppered with historical references ranging from the panic of 1873 to the hyperinflation of Weimar Germany, Fisher warned that both the public and Congress should be wary of expecting too much of a central bank.

It's more important than ever that we maintain the independence of our central bank, Fisher said.

His assessment of the economic outlook was sobering, but he cautioned investors against being overly risk-averse, lest they miss emerging opportunities.

It does an economy no good when creditors curl up in a ball and clutch their money, Fisher said. You can't have capitalism without capital.

There are a lot of dollar bills lying in the streets of these markets that could be picked up for nickels and dimes, he added.

Fisher said the Fed's unprecedented efforts at enhancing market liquidity, which include bringing benchmark U.S. interest rates close to zero and sharply expanding credit to banks, were bearing some fruit.

He pointed to a recent decline in interbank lending rates and a narrowing of corporate borrowing costs as small victories in the path to recovery. Still, Fisher stressed a turnaround would not happen overnight.

We have miles to go before we sleep, he said.

Fisher said a rebound in credit markets would have to take place before the global economy gets on a stronger footing.

(Writing by Pedro da Costa; Editing by James Dalgleish)