It's against the backdrop that Bernanke will deliver one of the most closely watched speeches of his chairmanship on Friday.
Investors around the world are waiting to hear how he will strike a balance between the Fed's two primary mandates -- maintaining the economic health of the nation while keeping inflation in check -- while reassuring the markets that the central bank is prepared to cut rates if needed.
"It’s going to be very interesting to see how he walks that tightrope," Art Cashin of UBS said on CNBC Thursday. "I don’t think he’s going to be specific. He's got to walk the fine line of not hinting of whether he will or won't cut, but he's got to give some broad background, some measuring sticks."
Bernanke gave one clue earlier this week when he sent a letter to New York Sen. Charles Schumer saying that the Fed will "act as needed" to help the economy. The letter, which was made public on Wednesday, helped fuel a rally in stocks that day.
But there have been mixed signals. In the minutes of the Fed's Aug. 7 meeting, policymakers indicated that they were ready to cut rates but hoped that the markets would correct themselves and not force the Fed to act.
Avoiding Greenspan Mold
Fed watchers say Bernanke is leery of rushing down the path of his predecessor, Alan Greenspan, who has been criticized for running to Wall Street's aid with interest-rate cuts.
Many have blamed the so-called "Greenspan put" for fueling a housing boom in the early part of this decade and encouraging reckless risk-taking. Still, the resulting upheaval in the subprime mortgage market has put pressure on Bernanke to at least show he is sensitive to the stresses gripping world financial markets.
"As the evidence accumulates over the next few weeks ... the Fed may come to the conclusion that the risks to the economic outlook have deteriorated so much that it has to lower the fed funds rate," said Sal Guatieri, an economist for BMO Capital Markets in Toronto.