IF THE Federal Reserve eases monetary policy again at its meeting on September 13th, as I expect, it will be its most meticulously debated, planned and scrutinised move in recent memory. The case for action has been apparent at least since the spring when it became clear the economy would underperform the Fed's repeatedly lowered economic forecasts. Yet Ben Bernanke spent much of the press conference following the Fed's meeting in June, when it extended Operation Twist (the purchase of long-term bonds financed by selling short-term bonds) on the defensive over why the Fed hadn't done more. In August, it again chose not to pull the trigger. But it did release a statement that hinted the point was drawing near. The minutes to that meeting released three weeks later suggested it would take an immediate and powerful improvement in the economy to stay the Fed's hand. When Mr Bernanke made his annual appearance at the Kansas City Fed's economic symposium in Jackson Hole, Wyoming, today, the world was wondering whether he would send a definitive sign that action was coming. He did not, merely repeating the key sentence from the August statement, that the Fed "will provide additional policy accommodation as needed to promote a stronger economic recovery." This should not have been surprising; Fed chairmen don't like to front-run the Federal Open Market Committee. Mr Bernanke had a different goal than signaling to Wall Street. Pressure on the Fed has become intense in the last year, from hawks and conservatives (not necessarily, but increasingly, the same) who think the Fed has done all it can do and going further risks inflation, monetisation of the debt, and a loss of credibility for the central bank; and from doves and liberals who accuse Mr Bernanke of having shirked his responsibility and his own prior advice to the Bank of Japan by not more aggressively using the tools and alternative frameworks available to boost employment. That this debate has unfolded against the backdrop of a tight and divisive presidential election has only raised the stakes, because it meant no matter what the Fed does, one party will accuse it of having helped the other win. Since Mr Bernanke could not escape criticism regardless of what the Fed did, tactically he was best served by waiting until the case for action was unambiguous, unsurprising and, most important, well articulated. The data have made the case unambiguous: employment and growth are weak and inflation by the Fed's preferred measure has edged down. By September 13th, it will certainly be unsurprising. Mr Bernanke's task today was to articulate the case.

Mr Bernanke has always said the test was whether the benefits of more "quantitative easing" (QE)—the purchase of assets by printing money—exceeded the costs. This is what he did today. On the benefits, he said studies that show the Fed's two previous rounds of QE (large scale asset purchases, or LSAPs in Fed jargon) plus Operation Twist had lowered Treasury yields by 80 to 120 basis points. They have also led to "significant declines in the yields on both corporate bonds...[and] substantial reductions in MBS yields and retail mortgage rates. LSAPs also appear to have boosted stock prices, presumably both by lowering discount rates and by improving the economic outlook." On the economic impact, he reported:

If we are willing to take as a working assumption that the effects of easier financial conditions on the economy are similar to those observed historically, then econometric models can be used to estimate the effects of LSAPs on the economy. Model simulations conducted at the Federal Reserve generally find that the securities purchase programs have provided significant help for the economy. For example, a study using the Board's FRB/US model of the economy found that, as of 2012, the first two rounds of LSAPs may have raised the level of output by almost 3 percent and increased private payroll employment by more than 2 million jobs, relative to what otherwise would have occurred. The Bank of England has used LSAPs in a manner similar to that of the Federal Reserve, so it is of interest that researchers have found the financial and macroeconomic effects of the British programs to be qualitatively similar to those in the United States.

Mr Bernanke also argued that the Fed's forward rate guidance, that is its commitment not to raise rates through the end of 2014, have had a powerful impact on expectations of Fed tightening. In conclusion, he said that "nontraditional policy tools have been and can continue to be effective in providing financial accommodation" (emphasis mine).

He then catalogued the potential costs of further easing: impaired market functioning as the Fed's share of total bonds in circulation rose; the potential for asset bubbles if interest rates are kept low for a long time; the threat of inflation if the Fed has trouble exiting from its purchases; and potential losses if the bonds lose value when interest rates rise. Mr Bernanke said "the hurdle for using non-traditional policies should be higher than for traditional policies. At the same time, the costs of non-traditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant."

Do conditions warrant? Yes. As Mr Bernanke put it, "the economic situation is obviously far from satisfactory."

If Mr Bernanke has made it clear that the Fed plans to act on September 13th, he has not yet clarified how. The Fed could extend its low-rate guidance past 2014, but Mr Bernanke's speech seemed to assign such a move less efficacy than further bond purchases. If the Fed buys bonds, would it buy Treasurys or MBS or something else? By citing housing as first among the headwinds holding back the economy, and specifying the impact on mortgage rates of prior QE, he made a prima facie case for buying MBS and Treasurys. It is still not clear, though, whether the Fed would announce a fixed amount of purchases over a fixed term, or an open-ended programme (eg, $100 billion per month, keyed to economic conditions).

What is fairly certain is that he will not be thanked when it happens. Conservatives will dial up their accusations of reckless Fed activism, and probably add toadying to Barack Obama to the rap sheet. Liberals will decry the Fed for not having gone further, or acted sooner. And in truth, no one can be sure that either is wrong. At today's Jackson Hole conference, there was an animated debate on this question. Adam Posen, whose last day on the Bank of England's Monetary Policy Committee is today, decried the "defeatism about policy" which leads people to conclude that if monetary policy isn't working, it must simply be the structure of the economy. In fact the problem is more likely to be impairments to particular financial markets, which can be addressed with asset purchases in that specific sector (eg, small-business loans). Central banks have shied away from such purchases because of "self-imposed taboos", Mr Posen fretted, such as fears that such purchases would misallocate credit or look like politicised fiscal policy. This, he said, "is a prehistoric way of thinking."

Larry Lindsey, a former Fed governor and adviser to George Bush, shot back: "In a free society, individuals and institutions don’t do unusual things because if you do, and break custom and happen to be wrong, you’re betting the farm. It's normal, prudential sort of political behaviour. For our profession, after the last two decades, to realise modesty in what we express and can do, is probably becoming."

Mr Bernanke can sympathise with both. When he first joined the Fed in 2002, he was, like most academics, something of a hedgehog, quite sure of the answers and impatient with the fools and cowards who refused to implement them. One of his first speeches as governor made the academic point that when short-term interest rates are at zero, the Fed still has plenty of ammo by printing money, what Milton Friedman euphemistically called dropping money from a helicopter. This was the origin of the epithet "Helicopter Ben". A year after that, he made the same case but with more nuance in Japan. In the intervening years, he has become, as most policymakers do, a fox: the real world contains political constraints and unintended consequences that must be factored in before the academically ideal remedy is applied.

The fox in Mr Bernanke appears to have made peace with the hedgehog. His most important audience today was his own colleagues. He needs not just their votes but their full-throated verbal endorsement of the Fed's next move in their speeches they make afterwards. What most outsiders can't appreciate about the job of Fed chairman is that among his unwritten responsibilities is maintaining the integrity and credibility of his institution for his successors. There are two ways this can be lost: by doing too little in the face of either too high unemployment or inflation; the other is by doing too much, with activism that prompts a backlash against the institution, constraining its ability to act again. If Mr Bernanke has calculated correctly, he has found a path between the two.

(Photo credit: AFP)