Bernanke's role 'is being politicised'

Fed chairman is under pressure from Congress as rate meeting begins

Stephen Foley
Wednesday 27 January 2010 01:00

Ben Bernanke is juggling a two-day meeting of the Federal Reserve's interest rate-setting federal open market committee with final appeals to members of Congress ahead of a vote on whether he should be reconfirmed as the head of the US central bank.

As other governors of the Fed warned about such a juxtaposition of supposedly independent monetary policy debate with high politicking, Mr Bernanke made a round of calls to lawmakers who are nervous about a backlash from voters, who blame the Fed chairman for the viciously unpopular bailout of Wall Street.

In a sign that Mr Bernanke, with the backstairs help of senior members of Congress and White House officials, had turned the tide of negative sentiment towards him, a tally of public comments showed 42 senators backing the chairman for a second term, to 18 opposed, with 40 still to declare.

Harry Reid, the Democrat leader in the Senate, who is facing a tough re-election battle in his state of Nevada, came out in favour of Mr Bernanke over the weekend after extracting what he characterised as a promise to help keep the flow of credit open to homeowners and businesses.

And yesterday Mr Reid said he believed that the Senate would now go ahead with a vote on Mr Bernanke's future tomorrow or Friday.

Mr Bernanke's confirmation had been thrown into doubt last week when senior Democrat senators unexpectedly came out against his nomination, criticising him for allowing the credit bubble to build in the first place and then prioritising Wall Street over ordinary Americans when the crisis finally hit. His first four-year term at the Fed is due to expire at the end of this month.

The FOMC began its latest meeting yesterday amid questions over whether and when it might withdraw its extraordinary support to the US housing market, which it has extended by buying mortgage-related securities and printing money to buy Treasuries, bringing down long-term mortgage rates.

The committee was split at its last meeting in December on whether the economy was healthy enough for the Fed to withdraw some of the monetary stimulus, or whether the housing market faces a double-dip downturn.

The Case-Shiller study of US house prices in November, released yesterday, muddied the picture, showing house prices slipping by 0.1 per cent, when economists had expected another modest rise.

The head of the Dallas branch of the Fed turned on Congress for seeking to politicise the central bank's deliberations. Richard Fisher, writing in The Wall Street Journal, said that opposition to Mr Bernanke was an "obstacle to economic recovery" because it threatened to compromise the Fed's independence.

"The impulse to use Mr Bernanke as a political punching bag raises the spectre that, instead of doing the right thing, Congress may seek to pressure the Fed to print its way out of this crisis," he said. "If Congress tampers with the independence of the Federal Reserve, it will move us toward the politicisation of the central bank of the world's greatest economy, putting the US on a road that leads directly to economic ruin."

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