Wall Street All Ears for Fed Chief's Big Speech

Companies tend to be slow to lay off employees when hard times hit, but they are quicker to cease hiring. Similarly, workers are disinclined to quit when there are few openings elsewhere. So in the early phases of a downturn, job growth remains steady and the unemployment rate does not change, even as fewer people are switching jobs.

That shows up in the Labor Department's job openings and labor-turnover report, published each month. If the July report, to be released Sept. 11, shows that the nation's job market was starting to freeze up, it could be a sign of trouble.

Each Thursday, the Labor Department reports how many workers filed for initial unemployment benefits in the previous weeks, an early but volatile sign of widespread job cuts. There were 322,000 such claims last week, a number that does not raise alarm bells among economists.

Consumer confidence and other survey data show how market problems are affecting peoples' views. On Tuesday, the Conference Board said its consumer confidence measure fell to the lowest level in two years.

"What the Fed does is very scenario-driven," said Peter Hooper, chief economist of Deutsche Bank Securities who previously was on the Fed staff. "A September rate cut would be driven by a feeling that confidence has really taken a hit."

But that measure can plummet without necessarily meaning the economy is on the rocks, as was the case following Hurricane Katrina.

Fed policymakers are not particularly interested in the exact level of the Dow Jones industrial average or the interest rate for a jumbo mortgage. Rather, they focus on whether transaction volume in troubled credit markets is increasing. They would like the difference between what buyers of assets are willing to pay and what sellers will accept, known as the "bid-ask spread," to narrow.

Assuming he follows his past practice, Bernanke, in his speech, is expected to take an academic approach, as befits a man who was a college professor for 23 years. He is likely explain the intellectual prism through which he is inclined to make decisions in the months ahead, not what those decisions will be.

"Instead of talking about the contemporary flashpoint, it will be a scholarly disquisition," said Alan S. Blinder, a Princeton University economist and former Fed vice chairman. "I don't expect to hear out of his mouth the words BNP Paribas, Countrywide, Bear Stearns, or any of that," he said, referring to companies that have been central to the recent market fluctuations.

"He doesn't want to rock a lot of boats," Blinder said. "One objective is not to make news."