Federal Reserve Chairman Ben S. Bernanke tomorrow may disappointstock investors betting on a commitment to step up stimulus. He haslittle choice, given rising consumer prices and a U.S. economy thatis still growing.

Gasoline costs are 33 percent higher, consumer inflation istwice as fast and inflation expectations are above levels sinceBernanke signaled more easing a year ago at the annual Fedsymposium in Jackson Hole, Wyoming. While the U.S. expansion hasslowed, the Chicago Fed's index of 85 economic indicators improvedin July for a third month on gains in production.

Policy makers, who said Aug. 9 they'll use additional tools “asappropriate,” probably don't expect a recession or rapiddisinflation, making a signal of bond buying premature, saidRoberto Perli, managing director at International Strategy &Investment Group in Washington. Instead, Bernanke will probablydetail options for further stimulus and clarify how much the Fed'sreduction in its outlook this month stems from long-term obstaclesto growth, said Keith Hembre, a former Fed researcher.

“Conditions are substantially different today” compared withlast year, especially inflation, said Hembre, chief economist andinvestment strategist in Minneapolis at Nuveen Asset Management,which oversees about $212 billion. “First and foremost, that wouldbe the reason I think that any sort of major asset purchaseannouncement is unlikely,” he said.

Shipping volume at trucking companies, a barometer of thebroader economy, was up 11 percent last month from a year earlier,according to Cass Information Systems. Echo Global Logistics Inc.,a Chicago-based provider of freight services, said last month it's“very optimistic about continued growth in the second half.”

Deflation Threat

The threat of deflation has subsided, with the LaborDepartment's consumer price index, minus food and energy, rising1.8 percent for the 12 months ending July. It increased at a 0.9percent 12-month rate in July 2010 before Bernanke's Jackson Holespeech last year.

A measure of inflation expectations watched by the Fed isshowing that traders see annual price increases of 2.77 percentstarting in five years, compared with 2.22 percent a year ago.

Even with the 12 percent plunge in the Standard & Poor's 500Index over the past month, U.S. stocks are still up 12 percent fromtheir level on the eve of Bernanke's speech last year, when theyhad gained only 1.6 percent from Aug. 27, 2009.

“The stock market is going to be disappointed Friday morning,”Rob Dugger, managing partner at Hanover Investment Group LLC and aregular participant at the Jackson Hole conference, said in aninterview on Bloomberg Radio's “The Hays Advantage.”

'Safely to Shore'

“It's not going to get that kind of life-buoy thrown out overthe water so that it can grab hold and swim safely to shore,” hesaid.

A government report today signaled that excluding a VerizonCommunications Inc. labor dispute, companies are slowing the paceof firings. The number of people continuing to receive joblessbenefits dropped by 80,000 in the week ended Aug. 13 to 3.64million, the fewest since September 2008.

Bernanke's speech, entitled “Near- and Long-Term Prospects forthe U.S. Economy,” is part of an annual symposium hosted by theKansas City Fed since 1982 beside the Teton mountains.

Academics and central bank officials are gathering to considerthe theme, “Achieving Maximum Long-Run Growth.” They will hearpresentations by Esther Duflo, a Massachusetts Institute ofTechnology professor, Dani Rodrik, a Harvard University professor,and European Central Bank President Jean- Claude Trichet, who hasattended the conference during five of the past six years.

Portfolio Weight

Bernanke, 57, may stress the option of trying to reduce long-runborrowing costs by giving more weight in the Fed's portfolio tolonger-term securities, Hembre said.

“Expectations ahead of the meeting were quite high at thebeginning of this week for some kind of firm policy statement, butI think that's very unlikely,” said John Kattar, chief investmentofficer at Eastern Investment Advisors in Boston, which manages$1.7 billion.

The Fed chief is constrained from signaling more easing by thefact that the Fed's Aug. 9 statement already leaned toward morestimulus and dissenting votes from three policy makers limit hisability to articulate a new strategy, Dugger said. Just beforeBernanke's speech a year ago, the Fed was in a more neutral stanceand he faced only one dissenter.

“The bar is high on additional security purchases,” said JamesDunigan, chief investment officer in Philadelphia for PNC WealthManagement, which oversees $109 billion. He doesn't see a need formore quantitative easing, estimating the odds of a recession as 20percent to 30 percent.

No More Stimulus

“Those who think we're getting an announcement of additionalstimulus from the Fed will be disappointed,” Dunigan said.

Investors are focused on the U.S. central bank because it is oneof the few policy levers left in Washington. U.S. lawmakers'agreement this month to raise the debt limit includes $917 billionin spending cuts over the next decade and calls for a jointcommittee to find as much as $1.5 trillion more by Nov. 23. If thepanel is unable to agree on a plan or if its recommendations arerejected by Congress before year's end, an automatic $1.2 trillionin across-the-board reductions would begin in January 2013.

“We have created a very bad precedent,” said Jim Paulsen, chiefinvestment strategist for Wells Capital Management in Minneapolis.“The financial markets whine and policy officials jump. The Fed hasbecome the Pavlov's dog of the stock market, and this is a horribleprecedent for policy makers.”

Fed Aims

Some data are showing little indication of deflation or arelapse into recession since the expansion resumed in mid-2009.Inflation expectations, as measured by the breakeven rate for10-year Treasury Inflation Protected Securities, were 2.04percentage points yesterday, up from 1.57 percent a year ago. TheFed aims for long-run inflation ranging from about 1.7 percent to 2percent.

“I would not expect Bernanke to add anything substantial to whatthe FOMC already said,” said Perli, who worked in the Fed'sDivision of Monetary Affairs from 2002 to 2010. “The forecast thatthey have has come down for sure, but probably doesn't justifyadditional action,” Perli said. “They are going to wait and see howthe data play out.”

Bernanke may just review in detail what's available in the Fed'smonetary policy toolkit, said Alan Ruskin, global head ofGroup-of-10 foreign exchange strategy at Deutsche Bank SecuritiesInc. in New York.

“I don't think he will do more than outline future policyoptions,” Ruskin said. “Bernanke has tended to be preemptive andshown some capacity to pull a rabbit out of the hat. There are somepeople who may feel he is still a magician. That is aminority.”

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