Potential triple dissent to test Bernanke

By Ros Krasny

CHICAGO (Reuters) - Federal Reserve Chairman Ben Bernanke faces a potential mauling from three policy hawks in August that may test his apparent desire to keep interest rates steady until the smoke clears a bit more in financial markets.

Analysts sense that the outcome predicted by financial markets for the August 5 meeting of the monetary policy-setting Federal Open Market Committee -- a steady federal funds rate -- will come only after a bruising debate.

"Hawkish comments from Philadelphia Fed President Charles Plosser raise the odds that three FOMC members will dissent at the August meeting," said economists at Lehman Brothers. "It would be the first time since November 1992."

Plosser this week said the Fed should start to reverse course "sooner rather than later," echoing comments Minneapolis Fed President Gary Stern delivered on Friday.

"We can't wait until we clearly observe the financial markets at normal, the economy growing robustly, and so on," said Stern, the Fed's longest-serving regional president but one who has not joined this year's jamboree of dissenters.

Dallas Fed chief Richard Fisher is arguably the ring-leader among the inflation hawks. Of Fed officials who get a vote this year on rates, Fisher has been the most outspoken and has already registered four dissents in favor of tighter policy.

Even with dissent in the air, financial markets see just a 10 percent chance for an increase in benchmark overnight rates in August from their current 2 percent.

By September, however, perceived prospects for a rate increase jump to 68 percent. Dealers fully price a hike by October and a possible year-end federal funds rate of 2.5 percent.