While weekly unemployment claims dropped this week, the 4-week average number is still at its high for the year, and August employment numbers are likely to go negative, perhaps even in the private sector. Clearly the economy is stuck in neutral, and while spending on unemployment benefits and state fiscal aid is just coming online, I wouldn’t expect any more fiscal policy to create or save jobs in the near future.

Amidst this economic uncertainty, all eyes turn to the Fed, and specifically Chairman Ben Bernanke. The Fed made a lateral move at their last meeting, vowing to buy up Treasury notes in a bid to keep their balance sheet at the same level and not have the mortgage-backed securities they hold depreciate because of refinancing. But that’s a holding action, and with economic indicators worsening, nobody knows what the central bankers will do next, with practically the only tool left given legislative gridlock. Bernanke could outline the path forward in a speech tomorrow.

With fresh signs that the housing market is weakening, the Federal Reserve chairman, Ben S. Bernanke, on Friday will offer his outlook on the economy, explain the Fed’s recent modest move to halt the slide and possibly outline other actions.

Mr. Bernanke’s speech, at an annual Fed symposium in Jackson Hole, Wyo., will be his first public comments since the Fed announced it would invest proceeds from its holdings of mortgage bonds to buy more long-term Treasury securities to prop up the recovery.

It is not known what Mr. Bernanke will say, but some insight may come from an episode in his past: his concern, soon after he became a Fed governor, that the economy was at risk of deflation as the nation gradually recovered from the dot-com bust a decade ago.

It’s important to understand that the Fed is missing targets on both its main missions right now – full employment and price stability. Inflation is much lower than the target, and could go negative; and unemployment is unsustainably high. Nothing the Fed is doing right now has worked, so we’ll see if Bernanke thinks it’s time for experimentation.

The problem is they’re at the lower bound, and the state of the economy shows that the real interest rate should be sharply negative, something which would obviously never happen. Through quantitative easing, the Fed could wring out some more juice to give to the economy, but Alan Blinder says they have precious few options:

Chairman Ben Bernanke has told the world that the Fed is not out of ammunition. It still has easing options, should it need to deploy them. The good news is that he’s right. The bad news is that the Fed has already spent its most powerful ammunition; only the weak stuff is left [...]

To give quantitative easing more punch, the Fed may have to devise imaginative ways to purchase diversified bundles of assets like corporate bonds, syndicated loans, small business loans and credit-card receivables. Serious technical difficulties beset any efforts to do so without favoring some private interests over others. And the political difficulties may be even more severe. So the Fed will go there only with great reluctance.

Blinder systematically goes over some other options, like stating a target for the time frame of the low federal funds rate, or possibly charging the banks interest to park their reserves at the Fed, or loosening lending standards. None are fully attractive options. But my view is that you play the only game in town, and right now, it’s monetary policy. Politically speaking, Democrats and the White House should devise a job strategy, something like a better-designed, more immediate stimulus, and ride it to November, and bang on it repeatedly. From a policy standpoint, the economy needs help now, and that’s where the Fed comes in.

More from Neil Irwin.