Fed meets as Bernanke deadline looms

The U.S. Federal Reserve began the first day of a two-day meeting on interest rates Tuesday, as lawmakers continue to debate the nomination of Ben Bernanke to head the agency for a second term.

The central bank's federal funds rate currently sits in a range of zero to 0.25 per cent, where it has been for more than a year as part of a plan to revive economic activity.

The chances that the central bank will emerge on Wednesday having elected to raise rates are virtually nil, so much of the suspense of the Fed meeting surrounds the fate of Ben Bernanke, whose nomination to head up the Fed for a second four-year term is bogged down in Congress.

Opposition mounting

Bernanke's term is set to expire on Sunday, Jan. 31, 2010. U.S. President Barack Obama nominated him to sit a second term in late 2009, and a final vote in the two houses is expected by the end of the week.

"He has my strongest support. I think he's done a good job," Obama told ABC News on Monday.

"What we need is somebody at the Federal Reserve who can make sure that the progress that we've made in stabilizing the economy continues. I think Bernanke is the best person for that job," the U.S. president said.

But the situation was complicated when the Democrats lost a Massachusetts Senate seat they had held for decades, as Republican candidate Scott P. Brown surprisingly won the late Ted Kennedy's Senate seat, thus costing the Democrats their filibuster-proof 60-seat supermajority in the upper house.

Exactly how much actual opposition Bernanke has in Congress is unknown, but he can certainly count on several "no" votes when the Senate takes up his confirmation.

A review of public statements and a survey of Senate offices Monday showed more than 30 senators publicly supported Bernanke. Fifteen had announced their opposition, including high-ranking Republican Senator John McCain.

Alabama Republican Senator Richard Shelby is one of Bernanke's staunchest critics.

"I strongly disapprove of some of the past deeds of the Federal Reserve while Ben Bernanke was a member and its chairman, and I lack confidence in what little planning for the future he has articulated," Shelby said last month. "I will be opposing a second term."

Senator Dick Durbin of Illinois, the second-ranking Democratic leader in the Senate and the party's top vote counter, conceded many Democrats are apprehensive. But after meeting with Bernanke Monday in the Capitol, Durbin said the Fed chairman should win a second term with help from Republican senators.

Bernanke's reappointment needs 60 votes to overcome a procedural hold on his confirmation placed by Senator Bernie Sanders, a Vermont independent who has been one of his leading critics.

'I think he's done a good job' —Barack Obama on Ben Bernanke

But Durbin said even senators who might oppose the Fed chairman have said they would not attempt to block his confirmation from reaching the Senate floor. Among them are Democrats Patrick Leahy of Vermont and Sheldon Whitehouse of Rhode Island.

"I don't like filibusters on nominations," Leahy said.

Durbin said Bernanke in their meeting acknowledged "mistakes were made" before the financial crisis. But Durbin said Bernanke also noted that problems that created the crisis predated his government service.

"Putting all this at his doorstep may be going too far," Durbin said.

Democratic Senator Max Baucus of Montana, chairman of the Senate Finance Committee, was among several senators who began falling in line behind Bernanke's confirmation on Monday. "Facing circumstances not seen since the Great Depression, he made a number of critical decisions that brought us back from the brink of economic disaster," Baucus said.

Market watchers are generally in favour of Bernanke's continued stewardship, and politicizing the choosing of a Fed chief would "hazard its independence," BMO chief economist Sherry Cooper said.

"Changing horses midway for political reasons would raise the specter of debt monetization, inflation and a considerable further fall in the U.S. dollar," Cooper said. "To be sure, qualified alternatives for Fed chair exist, but the disruption and uncertainty that would ensue aren't worth the risk."

If his Washington opposition is successful in halting the nomination, it is likely Bernanke would stay on until a suitable replacement could be found.

Fed officials will emerge from the two-day meeting and reveal their latest rate decision at 2:15 p.m. on Wednesday.