Those expecting Federal Reserve Chairman Ben Bernanke to pull a rabbit from his hat at a retreat for central bankers here on Friday may be in for a letdown.

His opening remarks will be widely watched by financial markets hoping for some indication the central bank is prepared to step in to support an economic recovery that appears at risk of stalling.

Bernanke, however, is unlikely to announce a third round of Fed bond buying. The Fed has already bought $2.3 trillion in longer-term securities -- a policy known as quantitative easing. Its most recent program, dubbed QE2, ended in June.

But he is likely to acknowledge the economy's strains, and may show a willingness to take other, relatively modest, steps to shore up the recovery.

"If people in the marketplace think he's going to announce QE3, they're going to be disappointed," said Bank of America Chief Economist Mickey Levy, speaking in the lobby of the Jackson Lake Lodge, where the annual retreat is being held.

The U.S. economy braked sharply in the first half of the year, expanding at less than a 1% annual rate. Analysts do not believe it is faring much better now.

At the same time, Europe is strangled by a debt crisis, and both major economic zones appear at risk of recession.

As gloomy news on the U.S. economy mounted in recent weeks, stock markets plunged and speculation the Fed would crank up its crisis-fighting operation grew. The yield on the 10-year Treasury note hit a new low.

So far in August, the Standard & Poor's 500 Index has fallen 10% -- a figure that papers over some of the gut-wrenching daily drops and mind-bending volatility.

However, stock market investors spent much of this week driving share prices higher on the premise that the Fed would have to begin to snap up more bonds to push borrowing costs lower. The S&P rose nearly 5 percent through Wednesday before the reality began to set in on Thursday that Bernanke was unlikely to lay out any bold policy initiatives.

A BALANCE SHEET FIX

While Bernanke is expected to stop short of offering a grand economic fix, he may well signal a willingness to adjust the central bank's $2.8 trillion portfolio to try to get more bang for each buck.

Fed officials have discussed buying more longer-term debt and selling short-term securities, an operation that could increase downward pressures on long-term interest rates without further bloating the central bank's balance sheet.

Beyond providing a psychological boost, lower long-term rates could encourage home and car purchases, and business investments.

"These are small moves," said Wells Fargo economist John Silvia, one of many conference attendees milling about the lodge before the start of the conference on Thursday. "This is not the time to put up full sails."

Even some Fed policymakers admit changing the Fed's holdings to twist down the longer end of the interest rate curve might do little good.

"A twist operation would not have every much effect. It's been analyzed many times," St. Louis Federal Reserve Bank President James Bullard told Reuters on the conference sidelines.

A FISTFUL OF DOLLARS

Over the last five turbulent years, Bernanke has used his speeches at Jackson Hole to assure the public the Fed stood ready to come to the economy's aid.

Last year, he laid groundwork for the Fed's November decision to launch a second bond-buying spree. Although there will be no less attention to his remarks this year, conditions have changed.
Inflation is higher and the risk of a vicious deflationary cycle is lower. While growth is weak, Fed officials do not appear particularly concerned about recession risks.

"We will continue on this modest growth path as we go forward," said Kansas City Fed President Thomas Hoenig. "It's not exciting, but it's not a recession.

However, a series of regional factory surveys have suggested manufacturing sector, which has powered the recovery, may be contracting, and jobs growth continues to fall short of what is needed to lower an unemployment rate stuck above 9%.

In addition, sovereign credit strains in Europe have not gone away, adding to an overall sense of uncertainty many think is keeping consumers and businesses on the sidelines.

With that as a backdrop, economists increasingly think further Fed easing may not be far off.