Fed chair Ben Bernanke stopped just short of calling for a third round of quantitative easing in a speech this morning, but there isn’t much mystery now as to whether the Fed will intervene.  The only question is when:

The Federal Reserve chairman, Ben S. Bernanke, delivered on Friday a detailed and forceful argument for the benefits of new steps to stimulate the economy, reinforcing earlier indications that the Fed is on the verge of action.

Mr. Bernanke said that the Fed’s policies over the last several years have provided significant benefits, but that a clear need remained for the Fed to do more and that, in his judgment, the likely benefits of such actions outweighed the potential costs.

“It is important to achieve further progress, particularly in the labor market,” Mr. Bernanke said in his prepared remarks. “Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”

Mr. Bernanke did not announce any new steps in his speech, delivered before an annual monetary policy conference organized by the Federal Reserve Bank of Kansas City. Nor did he offer a timetable, although many analysts expect the Fed to act at the next meeting of its policy-making committee on Sept. 12 and 13.

There aren’t a lot of options outside of a ride on the QE3 for Bernanke.  The Fed has continued its “twist” strategy to stimulate the economy, but that hasn’t provided the boost that Bernanke wants.  The continuing lack of jobs is an ongoing tragedy that requires action, Bernanke argued:

“The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.”

I don’t disagree with that.  The ongoing high levels of unemployment and underemployment risk creating a generation without enough accrued wealth to survive without significant assistance past their working years, which will necessarily have to be extended.  That will keep younger people of those generations from gaining ground in the job market and accruing capital, and it will be a vicious cycle unless we can start creating jobs now — and good-paying jobs rather than McJobs.

The question, though, is whether a QE3 will produce that kind of outcome, even though it’s the only tool Bernanke has.  So far, QE1 and QE2 haven’t, and that’s because the problem isn’t a tight money supply.  Money is about as cheap as it ever has been.  Diluting its value might prompt a few to put capital in play earlier, but again, that hasn’t been the case with the Fed’s earlier interventions, at least not to the extent to solve the problem or even significantly alleviate it.  The reason why “the economic situation is obviously far from satisfactory” is because of the policies of Barack Obama on regulation, especially the sweeping and still-ambiguous powers granted under ObamaCare and Dodd-Frank.  If businesses cannot price risk, they will not invest in growth-producing activities.

Bernanke’s right about the state of the economy and job creation in the US.  Unfortunately, he and the Fed can’t fix it.