By Mark Felsenthal
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Bernanke, who speaks at 1:30 p.m. Eastern, no doubt will nod to the drumbeat of disappointing news on the recovery, but he will likely avoid getting out in front of what is shaping up to be an epic brawl among Fed officials who differ widely over the need for further monetary easing.
"Given the level of opposition coming out of the woodwork, it will be very difficult for the chairman to pre-emptively announce any further moves for monetary policy," said Eswar Prasad, an economist at Cornell University.
Nor will the Fed chairman want to trespass on President Barack Obama's speech on job creation later on Thursday. If anything, Bernanke may renew his plea for fiscal authorities to do their bit to stimulate a more robust expansion by not choking off growth with overzealous austerity measures.
"The context is very useful to think about," said Prasad. "Since Obama is going to speak, the chairman saying that such (fiscal) measures could be helpful could be a significant one-two punch."
The Fed cut benchmark rates to near zero almost three years ago to pull the economy out of a sharp recession. It bought $2.3 trillion worth of longer-term securities in two installments ending in June to boost faster growth.
But the recovery has faltered. The economy expanded at less than a 1 percent annual rate in the first half of the year, and looks to be doing no better now. A report on Friday showed job growth had stalled for first time in nearly a year.
With the confidence crumbling, the Fed on August 9 expanded on an earlier promise to hold short-term rates at rock-bottom levels for an extended period, saying it expected to keep them low at least through mid-2013.
Since then, evidence that already tepid economic growth may be giving out altogether has piled up. Employers added no new jobs on net in August, and the unemployment rate remained stuck at a 9.1 percent. Surveys of regional manufacturing, consumer confidence and housing activity showed disappointing softness.
So bleak are prospects that analysts at BNP Paribas now project the economy will contract by an annualized 2 percent in the last three months of the year.
"We never moved out of recovery into expansion," said BNP Paribas economist Yelena Shulyatyeva.
In a speech on August 26, Bernanke said the Fed would consider at its next meeting what more it could do to help the economy, although he offered no details on his thinking.
The most likely next step for the U.S. central bank would be to rebalance its bond portfolio to weight it more heavily toward longer-term securities, thus pushing down longer-term interest rates.
To do so, however, Bernanke would have to bridge the chasm between the views of policymakers at the central bank.
Richmond Federal Reserve Bank Jeffrey Lacker said in an interview published on Monday that more stimulus would only fuel higher inflation and do little to boost growth.
On the other end of the spectrum, Chicago Fed leader Charles Evans has called for further easing until unemployment drops to 7.5 percent or inflation threatens to hit 3 percent. He said on Wednesday a jobless rate of 9 percent should set policymakers' "hair on fire."
The Fed's August decision to expand on its forward interest-rate guidance drew three dissenting votes, and a decision to ease further would likely do the same.
While Bernanke may well go forward with fresh easing in spite of dissents, he may want to tread lightly.
Bernanke is mindful that a bruising battle in Congress over raising the U.S. debt ceiling impasse in July contributed to the uncertainty plaguing businesses and consumers. A desire to provide as much policy clarity as possible suggests he will work hard to get the strongest show of support he can.
"He really can't break new ground given a divided Federal Reserve," said Allen Sinai of Decision Economics. "What is loud and clear is that some new measures will be taken on a downgraded outlook."