Obama, Bernanke discuss U.S. economic risks

WASHINGTON (Reuters) - Democratic presidential candidate Barack Obama met Federal Reserve Chairman Ben Bernanke on Tuesday, discussing the risk of further deterioration in a weakening U.S. economy.

With U.S. economic troubles taking center stage in his battle for the White House with Republican rival John McCain, the Illinois senator met Bernanke at the Federal Reserve for about 40 minutes after speaking with Treasury Secretary Henry Paulson by telephone in the morning.

"Senator Obama had an informative meeting with Chairman Bernanke at the Federal Reserve about the health of the U.S. economy and the risks of further economic deterioration," Obama's Senate spokesman Michael Ortiz said.

"Senator Obama made clear his respect for the independence of the Federal Reserve System and the special importance of its role during periods of economic uncertainty," Ortiz said.

Polls show the faltering U.S. economy has become the top issue by a wide margin in the November 4 election contest with McCain, and Obama has turned his focus to potential solutions during two days of meetings with economic leaders and advisers in Washington.

A campaign adviser said Obama had wanted to talk with Bernanke about the U.S. housing crisis and what he saw as the need for tighter financial regulation and more fiscal stimulus to boost the economy.

Obama wanted the Fed chairman to give him "an update on where the economy is and where it's going," the adviser said, and was "not there to tell Bernanke how to do his job."

Obama reminded Paulson in the phone call that he supported housing legislation passed by Congress last week and now awaiting President George W. Bush's signature.

The measure gives the Treasury secretary wide discretion to extend a financial lifeline if needed to the two companies that are the largest source of U.S. home finance. Obama urged him to use that discretion to help homeowners, Ortiz said in a statement.

RESTORE CONFIDENCE

"The two men agreed that Washington must restore confidence in Fannie Mae and Freddie Mac in a way that protects the taxpayer and our financial system, and that we must reform and modernize our regulatory structure to avoid these problems in the future and protect average Americans," Ortiz said.

A Treasury Department spokeswoman said there would be no comment on the phone call with Paulson. The Federal Reserve had no comment on the Obama-Bernanke meeting.

McCain spokesman Taylor Griffin said the Arizona senator also "regularly consults with a range of experts including Bernanke and Paulson and has done so for years."

"Barack Obama's confused economic plans make it clear that he lacks experience on economic issues and has a great deal to learn," Griffin said. "Hopefully his meetings will help him to understand that raising taxes in a slowing economy is a sure way to kill jobs."

Obama organized the sessions with Bernanke and Paulson last week as he was traveling overseas because he kept seeing bad economic news from home, an adviser said. Obama's trip took him to Afghanistan, the Middle East and Europe.

Obama met in Washington on Monday with an all-star group of business and economic experts, including billionaire investor Warren Buffett, who participated by telephone, former Federal Reserve Chairman Paul Volcker and Google Chairman Eric Schmidt.

Obama also made another stop on Tuesday, his second in two days, at the downtown office of former Deputy Attorney General Eric Holder, who is heading his search for a running mate and later addressed a meeting of House Democrats on Capitol Hill.

Rep. Jim Cooper, a moderate Tennessee Democrat, said Obama discussed an issue important to fiscal conservatives -- the federal government's increased deficit spending.

Cooper said Obama identified this as "the problem" facing policy makers. "It was hard to fault anything he said," Cooper said, adding Obama demonstrated "a deft touch" with House members who are often at odds with senators from both parties.

Obama expressed confidence in Bernanke during an interview with Reuters on Saturday, saying he had made some good decisions in difficult circumstances.

Bernanke's term as head of the U.S. central bank ends in January 2010 and the next president, who will take office in January 2009, will decide whether to nominate him for another term.

(Additional reporting by Richard Cowan and Jeff Mason; Editing by David Alexander and Eric Walsh)