What to Look for Today at the Fed

Nicholas Kamm/Agence France-Presse â€" Getty Images Ben S. Bernanke at an event Monday marking the 100th anniversary of the Federal Reserve.

Ben S. Bernanke, chairman of the Federal Reserve for a few more weeks, will hold his last official news conference on Wednesday afternoon, shortly after the Fed’s policy-making committee announces its plans for the global economy.

Here’s a brief summary of the key issues confronting the central bank.

How long, how long must we buy these bonds?

The Fed has purchased more than $1 trillion in Treasuries and mortgage bonds during 2013 in an effort to encourage job creation. It is a campaign that was supposed to be winding down by now.

Mr. Bernanke said in June that the Fed’s policy-making committee “currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year.” Moreover, he predicted that the Fed would end the purchases when the unemployment rate was “in the vicinity of 7 percent,” a milestone reached in November.

Yet most analysts expect the Fed to say on Wednesday that it will keep buying bonds at the present pace at least until the end of January - and perhaps even longer.

The case for more is easily summarized. The Fed has two jobs, and it is failing at both. Unemployment remains high; inflation remains sluggish. Some people think buying bonds is not doing any good. Some people think it is dangerous. Mr. Bernanke and his colleagues say it is safe and effective. So why would they stop?

The case for less basically boils down to the Fed’s fear of doing too much. The effects of monetary policy spread gradually through the economy, so the Fed is essentially deciding now what the economy needs over the next few years. It is possible that it has already pushed hard enough to get the sled down the hill.

Yet we have no inflation/We have no inflation today.

The slow pace of price increases over the last year, in the midst of an economic expansion, has no precedent in modern American history.

(Puzzled as to why that might be a problem? Read here.)

So far, Fed officials have treated sluggish inflation as a temporary phenomenon, predicting that prices are about to start rising more quickly.

So far, Fed officials have been wrong. By one government measure, prices increased only 0.7 percent during the 12 months through the end of October.

“We don’t have a good story about why this is,” James B. Bullard, president of the Federal Reserve Bank of St. Louis, said in November. “You would have expected to see more inflation pressure by this point. We haven’t seen it.”

Other Fed officials have similarly expressed puzzlement, and growing concern. Will that be reflected in the Fed’s policy statement? Some analysts see the sluggish pace of inflation as a primary reason for the Fed to put off tapering.

What’s an appropriate gift for the fifth anniversary of zero rates?

Fed officials have spent a lot of time in recent months trying to convince investors that tapering will not change the plans for the centerpiece of the Fed’s economic stimulus campaign, its commitment to hold short-term interest rates near zero.

Some officials regard those efforts as sufficiently successful already, but most think the Fed needs to find a new way of reinforcing its commitment.

The most popular ideas at the Fed’s last meeting, in October, included a formal declaration that the Fed is likely to keep short-term rates relatively low once it ends the long period, dating back to 2008, it has held those rates near zero.

Another possibility: describing the factors the Fed will consider in raising rates.

Stronger steps drew less support. The Fed has said that it intends to keep rates near zero at least as long as unemployment is above 6.5 percent, and it could lower that threshold. It also could add a threshold for a minimum level of inflation.

Economists are scientists who make predictions that are always wrong.

The Fed will also publish an updated economic forecast on Wednesday, aggregating the individual predictions of the members of its policy-making committee.

This is not a good way of learning where the economy is headed. At this time last year, Fed officials collectively predicted an unemployment rate at the end of 2013 of 7.4 to 7.7 percent, and inflation of 1.3 to 2.0 percent. Unemployment now stands at 7 percent; inflation at 0.7 percent.

It may, however, tell us something about where the Fed is headed. Officials are setting policy now based on what they think the economy will need over the next few years. The stronger the forecasts, the less help they are likely to provide.

And one for the record books . . .

Will Esther L. George, president of the Federal Reserve Bank of Kansas City, become just the fourth Fed official to dissent eight times in one year?