Investors await big Federal Reserve news

If the world's investors are right, the Federal Reserve is about to take a bold new step to try to invigorate the U.S. economy.

And many expect the central bank, which began a two-day meeting Wednesday, to unleash its most potent weapon: a third round of bond purchases meant to ease long-term interest rates and spur borrowing and spending. It's called "quantitative easing," or QE.

Others foresee a more measured response. They think it will extend its timetable for any rise in record-low short-term rates beyond the current target of late 2014 at the earliest.

Fed officials will end with an announcement of any decision around 12:30 p.m. Thursday. Later, chairman Ben Bernanke will hold his quarterly news conference.

The stock market edged higher Wednesday, partly in anticipation of Fed action.

The Fed is facing pressure to act now because the U.S. economy is still growing too slowly to reduce high unemployment. The unemployment rate has topped 8 percent every month since the Great Recession officially ended more than three years ago.

In August, job growth slowed sharply. The unemployment fell to 8.1 percent from 8.3 percent, but many Americans stopped looking for work, so they were no longer counted as unemployed.

Chronic high unemployment was a theme Bernanke spotlighted in a speech to an economic conference late last month. Bernanke argued that QE and other unorthodox Fed actions had helped ease borrowing costs and boosted stock prices.

In his speech, Bernanke cited research showing that the two previous rounds of QE had created 2 million jobs and accelerated economic growth. Still, he said persistently weak hiring remains "a grave concern" that inflicts "enormous suffering." His remarks sent a clear signal that the Fed will do more.

"He had a sense of urgency," said David Jones, chief economist at DMJ Advisors. "I think he is convinced that there is a need to do something."

Some critics, inside and outside the Fed, remain opposed to further bond buying. They fear that by pumping so much cash into the financial system, the Fed is raising the risk of high inflation in the future.