• Bernanke faces toughest time yet after week of bad news • Federal Reserve chairman's speech will be scrutinised by markets • Committee split over 'QE-lite' solution to double-dip fears

When Ben Bernanke addresses the annual symposium of central bankers in Jackson Hole tomorrow he does so against arguably the most challenging backdrop in his tenure as Federal Reserve chairman.

At the end of a week of gloomy reports, Bernanke faces mounting expectations from markets that the Fed will step in to prop up the US's faltering economic recovery. News of stalling business activity and dismal home sales have fanned talk of a double-dip recession at a time when all the easy options have run out. At the same time, divisions appear to be emerging among his committee of policymakers.

Bernanke's speech at the Wyoming symposium, entitled The Economic Outlook and the Federal Reserve's Policy Response, will be scoured for any signs that he will live up to his nickname of "helicopter Ben" and scatter more money over the faltering US economy.

Following a slew of downbeat economic indicators, market expectations are growing that there will be more quantitative easing from the Fed before the end of the year. Under the radical scheme, also used in the UK last year, central banks pour money into buying assets such as government bonds from banks and the commercial sector, pumping more cash into the financial system and at the same time cutting market rates.

The Fed's latest policy meeting was reportedly the most contentious in Bernanke's four-and-a-half-year term there, but resulted in a decision to carry out what has been described "QE-lite". It decided to reinvest the proceeds of its maturing holdings of mortgage-backed securities by putting the funds into Treasury bonds.

Many economists say the next move will be more full-blown QE. But not everyone agrees it is the best way to prop up a fragile recovery. With the US growth outlook already "alarmingly bad", bond yields had fallen sharply, noted Rob Carnell at ING Financial Markets. If part of the aim of QE was to lower market rates, what was the point of embarking on it when they were already falling on their own?

"The market's fixation with QE is misguided," said Carnell. "Buying more bonds when fixed-income markets are already rallying strongly is a bit of a waste of time, and about the only 'good' argument for doing so would be that it might help to prevent a rout in equity markets. They will, at least temporarily rally on action of this kind.

"The problem is that the key word here is 'temporarily'. A policy that will not provide anything more than a shot in the arm for market confidence will sooner or later be swamped by the tide of bad news still flowing."

Others are sceptical that Bernanke will feel he is in a position to drop any hints on more QE given the recent report in the Wall Street Journal that seven out of 17 officials disagreed with or expressed reservations about "QE-lite".

"Under those circumstances, we don't expect Bernanke to signal that the Fed would be willing to take steps to expand its balance sheet, simply because he can't be sure his colleagues would support such moves," said Paul Ashworth at Capital Economics.

Still, Bernanke's speech comes against a particularly gloomy backdrop. Markets have been repeatedly caught off guard this week as economic data has undershot analysts' forecasts. Sales of new US homes hit a record low in July, existing home sales slumped twice as fast as expected last month to a 15-year low and orders for durable goods from manufacturers barely rose.

There was one small bright spot as US unemployment claims came in lower than expected. But the next economic news due out of the US is unlikely to follow suit. GDP data tomorrow is expected to show the economy grew at an annual pace of 1.4% in the second quarter, down sharply from a previous estimate of 2.4% growth.

"Although a double-dip recession is far from certain, US data from July and August would suggest that the economic situation in the States is going to worsen before it improves," said Chris Redfern, senior dealer at currency business Moneycorp.

"It is almost certain that the [GDP] data will be revised down, probably from 2.4% to 1.4%, although given this week's disastrous housing data, it is possible that the data will be even worse than anticipated."