Agence France-Presse . Washington

Federal Reserve chairman Ben Bernanke is facing the biggest challenge of his career amid fears the US economy is sinking into a recession, analysts say.

Market criticism of Bernanke, who presided over a surprisingly deep interest rate cut Tuesday, has picked up in recent weeks as major US banks divulged big losses and Wall Street stocks went on a roller-coaster.

The Dow Jones Industrial Average tumbled more than 300 points Wednesday and then surged back to close nearly 300 points up.

But few were willing to predict the market's direction in the coming days. 'Unfortunately, Bernanke seems to act strongly only when pushed to the wall,' Joel Naroff of Naroff Economic Advisors said in a briefing note, referring to the Fed's 75 basis point cut in its main base rate to 3.50 per cent on Tuesday.

The 54-year former academic is walking a tightrope. If the US economy avoids a recession he will likely be cheered as an economic savior, but his reputation could be tarnished if the world's biggest economy tips into a recession.

Bernanke and his fellow policymakers are using the federal funds interest rate — the bank-to-bank overnight lending rate — as their main gauge to keep economic momentum underpinned and out of recession.

Tuesday's dramatic cut in the rate will likely cheapen a wide range of consumer loans marketed by banks, such as car loans, and could even impact mortgage rates.

The US economy grew at a robust 4.9 per cent pace in the third quarter, but most economists say growth has slown markedly since then amid a worsening housing slump and a related credit crunch that has plagued Wall Street. The government is due to release fourth-quarter growth figures on Wednesday and most analysts expect growth slowed sharply to around 1.2 per cent.

'If the economy dodges a serious or prolonged recession, the task will be to unwind the recent monetary and fiscal stimulus before inflation expectations become un-anchored,' Bob Eisenbeis, a former executive vice president of the Federal Reserve Bank of Atlanta, wrote in a briefing paper for Cumberland Advisors.

In other words, if the Bernanke Fed makes borrowing costs too cheap, it could inadvertently trigger sharp price hikes and spur inflation. While the current market mayhem has placed Bernanke in the public spotlight, the Fed's ability to control the economy.

Some market observers say Bernanke's push to slash rates also could give the impression that the Fed chairman is acting as an emergency doctor to save an ailing stock market and wealthy investors, giving a so-called 'put option,' or ability to sell, to speculators.

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