Mr. Bernanke has said repeatedly that the Fed would act if it concluded that the economy would not grow fast enough to reduce the rate of unemployment.
“We are very committed to ensuring, or at least doing all we can to ensure, that we continue to make progress on unemployment,” he told Congress last week.
For the Fed, there is a caveat that holds the key to understanding its pending decision. Current economic conditions would most likely warrant a cut in the Fed’s benchmark interest rate. But of course the Fed cannot cut that rate, which has hovered near zero since late 2008. Instead it must decide whether to try improving the economy by other means.
There is considerable evidence that the Fed’s purchases of Treasuries and mortgage-backed securities have reduced interest rates and encouraged investors to buy riskier assets like equities. Stock markets rally whenever the central bank hints at another round of purchases. The Fed has made two large rounds of asset purchases, first in 2008 and again in 2010. But the broader benefits of lower rates have been tamped down because many consumers and businesses are unable to qualify for loans.