WASHINGTON — Federal Reserve policymakers are in a bind: they want to say and do things that will energize the economy, but in doing so they risk making things worse by sending signals that the recovery is in really bad shape.
On Tuesday, Fed Chairman Ben Bernanke and his colleagues on the Federal Open Market Committee will discuss whether to take any new action aimed at stimulating economic growth.
The pressure to act rose Friday with the release of July's disappointing jobs report. That showed the unemployment rate stuck at 9.5 percent and a third straight month of anemic hiring from the private sector.
"This was not a report that will make anyone happy. As for the Fed .... the members may decide to do something to show they are taking action," said economist Joel Naroff, president of Naroff Economic Advisors.
Economists say Fed officials have a handful of options at their disposal, but would likely consider two options for perking up the economy:
— Clarify that the Fed will keep short-term interest rates at record lows for as long as it takes to encourage more use of credit.
— Use the proceeds from the Fed's investments in mortgage securities to buy government debt on a small scale. That could help drive down long-term interest rates.
Both steps would signal to markets that money could be borrowed cheaply for a longer period of time, giving businesses and individuals more confidence to finance major purchases. Still, economists doubt how much practical impact they would have. Interest rates are already at historic lows and that hasn't generated more buying activity.
A bolder step would be to restart programs undertaken during the financial crisis that involved large-scale purchasing of mortgage-backed securities and government debt.
The aggressive action has the potential to spur growth by driving down interest rates even more, but it comes with considerable risk. It could rattle investors about the health of the economy and lead to a sell-off on Wall Street. Panicked financial markets could prompt businesses and consumers to retreat further. That could push the country back into recession.
"Such a move is unconventional, and no one knows if it will work," said Chris Rupkey, economist at the Bank of Tokyo-Mitsubishi. If Fed policymakers' take such action, "they risk their credibility," he said.
In 2009 and early 2010, the Fed bought $1.25 trillion in mortgage securities, $175 billion in mortgage debt from Fannie Mae and Freddie Mac, and $300 billion in government debt as part of two crisis-era programs.
The Fed's focus again on energizing the recovery is a shift from earlier this year, when it was starting to lay out its "exit strategy" for eventually boosting interest rates.
In a recent AP Economy Survey, 76 percent of economists said the earliest the Fed would boost rates is the spring of next year. By contrast, economists in a previous AP survey released in the spring thought the earliest rate boost would come at the end of this year.
There's concern within the Fed that another large-scale effort to stimulate growth would bulk up the already-bloated $2.3 trillion balance sheet and possibly unleash inflation risks down the road.
The Fed is more likely to take the smaller step of using the proceeds to buy new mortgage securities or government debt.
That would have limited impact on interest rates because the amount of money involved is small, roughly $10 billion a month. However, it would send a signal to Wall Street and Main Street that the Fed is open to additional credit-easing steps.
At Tuesday's meeting, the Fed is all but certain to leave its key bank lending rate between zero and 0.25 percent, where it has been since December 2008.
There's a chance the Fed could build on its pledge to hold this rate at record lows for an "extended period."
That means rates on certain credit cards, home equity loans, some adjustable rate mortgages and other consumer loans will stay low. Commercial banks' prime lending rate would stay at about 3.25 percent, the lowest point in decades.
The Fed also could bolster its policy statement, echoing Bernanke's promise to lawmakers last month that the Fed is "prepared to take further policy actions as needed," said Michael Feroli, economist at JPMorgan Chase Bank.