Chairman Ben S. Bernanke has big shoes to fill this week when hespeaks at the Federal Reserve's annual symposium in Jackson Hole,Wyoming: His own.

Last year, Bernanke hinted that the Fed might embark on a secondround of asset purchases to bolster the recovery, kicking off a 28percent rally in the Standard & Poor's 500 Index of stocks thatended in a three-year high on April 29.

Now, any boost to the economy from the Fed's $600 billion ofbond buying is hard to detect, with growth slowing to a less-than-1-percent annual pace in the first half, the U.S. losing itstop credit rating from S&P and stocks falling about 18 percentfrom their peak.

The deterioration — coupled with a government that's cuttingspending and showed itself to be “dysfunctional” ahead of thedebt-ceiling expiration this month — increases the pressure on theU.S. central bank to show it can and will help expansion, accordingto Neal Soss, chief economist at Credit Suisse Holdings USAInc.

Policy makers this month pledged to keep their benchmarkinterest rate near zero until at least mid-2013 and also said they“discussed the range of policy tools” available, signaling they mayadd to their record stimulus.

Bernanke will be making “a major speech and the chairman knowsthe whole world is watching, so if he chooses not to say very much,the markets and the economy in some broader sense would bedisappointed,” said Soss, a former economist at the Federal ReserveBank of New York. “It's absolutely critical that the FederalReserve portray itself as having some relevance to the economicproblems the society faces.”

Record Lows
Soss predicts Bernanke willsuggest that the central bank plans to lengthen the averagematurity for its $2.86 trillion of assets, which would help bringdown long-term interest rates. The yield on the benchmark 10-yearTreasury note was 2.062 percent at 5:14 p.m. on Aug. 19 in NewYork, according to Bloomberg Bond Trader prices. Yields have fallento record lows since the Fed announced its rate pledge on Aug.9.

Bernanke's decision about whether to expand his unprecedentedmonetary easing comes as he faces the most internal opposition inhis five-year tenure, and after his earlier measures sparkedcriticism. The latest bond-purchase program ignited the harshestpolitical backlash against the central bank in three decades, withRepublican lawmakers saying the policy risked causing a surge ininflation.

Rare Dissent
Federal Reserve Bankpresidents Charles Plosser of Philadelphia, Richard Fisher ofDallas and Narayana Kocherlakota of Minneapolis all voted againstthe Fed's decision to keep the target for the federal funds rate atzero to 0.25 percent until at least mid-2013. Plosser and Fisherboth said last week the pledge won't help spur growth. The lasttime three policy makers dissented was in November 1992.

“Our problems are not problems easily addressed by monetarypolicy,” Plosser said in an Aug. 17 interview, adding that the Fedis “risking its credibility because it's doing things that don'twork.”

It isn't clear how much any additional actions would help, giventhe Fed has already exhausted many of its tools, said Nigel Gault,chief U.S. economist at IHS Global Insight in Lexington,Massachusetts. The central bank has kept the rate on overnightloans among banks near zero since December 2008. It also purchased$1.7 trillion of Treasury and mortgage debt between December 2008and March 2010, and the $600 billion of Treasuries from Novemberthrough June.

No Rabbits
“Unfortunately, the Fed doesn'thave any rabbits to pull out of the hat to magically reigniteeconomic growth,” Gault said. “It is doing what it can, and despitethe dissent, that will probably mean a QE3 program at some point,but its prime ammunition has already been used.”

Bernanke told Congress on July 13 the Fed does have stimulusoptions; these include buying additional securities, increasing theaverage maturity of its bond portfolio, lowering the interest rateon excess reserves and pledging to keep its balance sheet near arecord high for a longer period of time.

He also foreshadowed the Federal Open Market Committee's Aug. 9decision to hold interest rates near record lows. The S&P 500Index climbed 7.6 percent between Aug. 8 and Aug. 15, and has sincefallen 6.7 percent amid concerns that U.S and global economicgrowth are faltering.

“The Fed got a pretty good response” to its decision, “so Ithink he'll try to continue to play his cards in a measuredfashion,” said Ward McCarthy, chief financial economist atJefferies & Co. in New York, who also predicts the Fed willincrease the average maturity of its portfolio. “We'll seesomething similar to last year.”

May Be Disappointed
The bond marketalready is pricing in an expectation that the Fed will announce newpurchases of $500 billion to $600 billion, Barclays Capital analystAnshul Pradhan said in an Aug. 12 report. Investors looking forconfirmation in Bernanke's Jackson Hole speech may be disappointed,he said.

While it's difficult to evaluate whether the last round of assetpurchases, or so-called quantitative easing, helped the recovery,the program “has to get a high grade” for raising inflationexpectations and diminishing deflation concerns, McCarthy said.

The cost of living in the U.S. accelerated at an annual pace of1.8 percent in July, excluding food and energy costs, which aretypically more volatile. The gain was the largest in more than ayear, according to Labor Department data released Aug. 18.

Stalling Expansion
The breakeven rate forfive-year Treasury Inflation Protected Securities, the yielddifference between the inflation-linked debt and comparablematurity Treasuries, was 1.67 percentage points on Aug. 19, up from1.13 points on Aug. 24, 2010. The rate, a measure of the outlookfor consumer prices over the life of the securities, has fallenfrom 2.47 percentage points April 29 on concerns that the expansionis stalling.

The economy grew at a weaker-than-projected 1.3 percent annualpace in the second quarter, the Commerce Department said July 29.Growth in the prior quarter slowed to 0.4 percent, the weakestthree-month period since the recovery began June 2009.

JPMorgan Chase & Co. reduced its estimate for fourth quarterexpansion to 1 percent from the 2.5 percent it previously predictedand lowered its first quarter 2012 forecast to 0.5 percent from 1.5percent, Michael Feroli, JPMorgan's chief U.S. economist in NewYork, said in an e-mailed note to clients on Aug. 19.

'Elevated' Risks
Consumer sentiment isfalling and the housing market has failed to gain momentum, hesaid. Global growth also “has disappointed and foreign-growthforecasts have been taken lower,” he added. “Risks of a recessionare clearly elevated.”

Morgan Stanley analysts have cut their estimate for expansionworldwide this year to 3.9 percent from a previous prediction of4.2 percent. Part of the reason was “the drama” around lifting theU.S. debt ceiling, which helped depress financial markets and erodebusiness and consumer confidence, the analysts said in a reportlast week.

President Barack Obama signed a plan to raise the federal debtlimit on Aug. 2, the deadline to avoid a possible default, aftermonths of wrangling with Congress. The deal would make $2.4trillion in deficit cuts over 10 years.

Any new easing by the Fed likely would expose the central bankto further criticism. Texas Governor Rick Perry, who this monthannounced his bid for the 2012 Republican presidential nomination,caused an uproar on Aug. 15 with a comment about Bernankeincreasing monetary stimulus before November next year.

'Treasonous' Behavior
“If this guy printsmore money between now and the election, I don't know what youwould do with him,” Perry said in Cedar Rapids, Iowa. “We wouldtreat him pretty ugly down in Texas. Printing more money to playpolitics at this particular time in American history is almosttreacherous — or treasonous — in my opinion.”

Bernanke also would have to overcome internal opposition toadditional measures after his rate pledge led to the threedissents. There is less agreement this year among FOMC members thatfurther easing is needed than there was a year ago when Bernankespoke out, said John Silvia, chief economist at Wells FargoSecurities LLC in Charlotte, North Carolina. That's one reason hepredicts the Fed chairman won't hint at additional measures inJackson Hole.

“I kind of doubt there will be anything big and spectacularannounced,” Silvia said. “I don't think it's the right thing to doas a leader because you're disenfranchising the people whodissented.”

Still, Bernanke's decision to pursue the rate pledge signaled hemay expand record monetary stimulus, with or without the fullsupport of his fellow policy makers.

“He is a man on a mission and that mission is to try to get thiseconomy back on a more normalized growth trajectory,” McCarthysaid. “They already made their feelings felt and I don't think thatwill stop him.”

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