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 at 8 a.m. local time, (10 a.m. EDT) will be widely watched by financial markets hoping for some indication the U.S. central bank is prepared to step in to support an economic recovery that could be stalling.
Bernanke, however, is unlikely to announce a third round of Fed bond buying. The Fed has already bought $2.3-trillion U.S. 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.
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.
Data on Friday showed the economy grew much slower than previously thought in the second quarter as business inventories and exports were less robust.
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 grew the Fed would crank up its crisis-fighting operation. 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 hair-raising 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% through Wednesday before the reality began to set in on Thursday that Bernanke was unlikely to signal fresh bond buying.
Plosser is one of the central bank's leading inflation hawks, and he dissented earlier this month against the central bank's decision to inform markets that it expected to hold interest rates ultra-low for at least two years.
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 U.S. 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.
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.
Related Stories
