Bernanke Faces Economic Dilemma in Jackson Hole Speech

Federal Reserve Chairman Ben Bernanke will address the Jackson Hole conference today, knowing that his words must reassure the public about the sluggish economy while also keeping the support of other policy makers.

Bernanke needs "to give a sense of confidence there is someone with a steady hand on the tiller," Ethan Harris, an economist at Bank of America, told The Associated Press. "One decisive speech can quiet the noise."

Anemic consumer spending and stubbornly high unemployment mean that the economic recovery is now likely to be "more modest" then previously hoped, as Bernanke himself put it. But with short-term interest rates already near zero, Bernanke and the Fed cannot turn to the measures they normally use to encourage consumers and businesses to start spending.

The Commerce Department is also expected to report that the economy grew at an annual rate of just 1.4% in the second quarter.

Other options available to Bernanke include upping the amount of bonds that the Fed buys. In theory, this would lower interest rates and make it easier for consumers and companies to get credit.

Not everyone wants the Fed to do more. Some policy makers at the Fed have expressed concerns about Fed policy aggravating the risk of deflation, while others worry more about inflation getting out of control.

"They're hurting rather than helping confidence with their noisy public debate," Harris told the AP.

The Fed's balance sheet stands at about $2.3 trillion, compared with just $860 billion in 2008. Since the financial crisis struck, the Fed has bought government debt and mortgage debt in bold moves to stabilize markets and keep credit flowing.