The Federal Reserve helped create a “perfect storm” in the US subprime mortgage market that could expose up to 2.2m more Americans to the threat of home foreclosure, Chris Dodd, chairman of the Senate Banking committee, said on Thursday.

Mr Dodd, who is also a Democratic Party candidate for the 2008 presidential nomination, alleged the Fed had failed in its oversight role when the growth in high-risk “adjustable rate mortgages (ARM)” to risky borrowers was exploding.