Ben Bernanke, Chairman of the US Federal Reserve, was facing mounting criticism last night of his handling of the crisis in world markets, raising concerns that he has lost the confidence of Wall Street before the Fed’s key meeting on interest rates.

Robert Shiller, Professor of Economics at Yale Univerisity, told The Times yesterday that Paul Volcker, the Fed’s chairman during the Carter and Reagan administrations, would have made a better job of spotting the consequences of the housing recession and credit turmoil on the American economy than Mr Bernanke.

His comments chime with criticism on Wall Street that America’s central bank has been “in denial” about the likelihood of a recession and that it had been blind and deaf to the slowdown in the housing market. The rising tide of criticism increases pressure on the Federal Open Market Committee (FOMC) to cut rates by a half of a percentage point during its two-day interest-rate meeting, which starts today.

Wall Street’s Treasury bond markets have already priced in a 50-basis- point cut to 3 per cent, which would mean that the cost of borrowing had been reduced by almost a third in just over a week, with last week’s cut the biggest in 26 years.

Professor Shiller said: “The rather aggressive rate-cutting we are seeing at the moment means that they [the Fed] are doing their job now. But we were advocating years ago that the Fed raise interest rates to stem the housing boom.

“Bernanke did not see the magnitude of the housing recession. Volcker would have made a better job of it. He was an independent thinker and wasn’t afraid.”

Fresh data adds to the gloom. Yesterday official numbers showed that sales of new homes had suffered decline that was bigger than expected in December, falling to their lowest level for 13 years.

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