DJ Bernanke In Behind Scenes Battle Over Policy -Report

DOW JONES NEWSWIRES
U.S. Federal Reserve chairman Ben Bernanke is waging a battle behind the scenes for control of U.S. monetary policy, struggling to overcome resistance from regional Fed hawks for further possible stimulus to prevent a deflationary spiral, according to The Daily Telegraph in London on Friday.
Fed watchers say Bernanke and his close allies at the Fed Board in Washington are worried by signs that the U.S. recovery is running out of steam, The Telegraph said. The ECRI leading indicator, published by the Economic Cycle Research Institute, has collapsed to a 45-week low of -5.7, in the most precipitous slide for half a century, The Telegraph said. Such a reading typically portends contraction within three months or so, The Telegraph said.
Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed's balance sheet from $2.4 trillion to uncharted levels of $5 trillion, The Telegraph said. But they are certain to face intense scepticism from regional hardliners, the newspaper said. The dispute has echoes of the early 1930s when the Chicago Fed stymied rescue efforts, The Telegraph noted.
"We're heading towards a double-dip recession," said Chris Whalen, a former Fed official and now head of Institutional Risk Analystics, according to The Telegraph. "The party is over from fiscal support. These hard-money men are fighting the last war: they don't recognize that money velocity has slowed and we are going into deflation. The only default option left is to crank up the printing presses again."
Bernanke is so worried about the chemistry of the Fed's voting body--the Federal Open Market Committee (FOMC)--that he has persuaded vice-chairman Don Kohn to delay retirement until Janet Yellen has been confirmed by the Senate to take over his post, The Telegraph said. Kohn has been a key architect of the Fed's emergency policies, the newspaper said. He was due to step down this week after 40 years at the institution, depriving Bernanke of a formidable ally in policy circles, The Telegraph said.
Newspaper Web site: http://telegraph.co.uk
-Dow Jones Newswires; dennis.baker@dowjones.com