No More Stimulus
"Those who think we're getting an announcement of additional stimulus from the Fed will be disappointed," Dunigan said.
Investors are focused on the U.S. central bank because it is one of the few policy levers left in Washington. U.S. lawmakers' agreement this month to raise the debt limit includes $917 billion in spending cuts over the next decade and calls for a joint committee to find as much as $1.5 trillion more by Nov. 23. If the panel is unable to agree on a plan or if its recommendations are rejected by Congress before year's end, an automatic $1.2 trillion in across-the-board reductions would begin in January 2013.
"We have created a very bad precedent," said Jim Paulsen, chief investment strategist for Wells Capital Management in Minneapolis. "The financial markets whine and policy officials jump. The Fed has become the Pavlov's dog of the stock market, and this is a horrible precedent for policy makers."
Fed Aims
Some data are showing little indication of deflation or a relapse into recession since the expansion resumed in mid-2009. Inflation expectations, as measured by the breakeven rate for 10-year Treasury Inflation Protected Securities, were 2.04 percentage points yesterday, up from 1.57 percent a year ago. The Fed aims for long-run inflation ranging from about 1.7 percent to 2 percent.
"I would not expect Bernanke to add anything substantial to what the FOMC already said," said Perli, who worked in the Fed's Division of Monetary Affairs from 2002 to 2010. "The forecast that they have has come down for sure, but probably doesn't justify additional action," Perli said. "They are going to wait and see how the data play out."
Bernanke may just review in detail what's available in the Fed's monetary policy toolkit, said Alan Ruskin, global head of Group-of-10 foreign exchange strategy at Deutsche Bank Securities Inc. in New York.
"I don't think he will do more than outline future policy options," Ruskin said. "Bernanke has tended to be preemptive and shown some capacity to pull a rabbit out of the hat. There are some people who may feel he is still a magician. That is a minority."