Fed Chairman Ben Bernanke, under fire from some for being slow to stamp out a smoldering credit crisis, takes the stage before global policy-makers on Friday in a test of his leadership with financial market worry at a fever pitch.

Against a backdrop of rising foreclosures and fear of a financial domino effect from failing hedge funds, one of the most closely watched speeches of his chairmanship may be used to signal a willingness to cut interest rates to shield the economy from financial turmoil.

However, he will also be leery of rushing down the path of predecessor, former Chairman Alan Greenspan, who has been criticized for running to Wall Street's aid with interest-rate cuts. Many have blamed the Greenspan put for fueling a housing boom in the early part of this decade and encouraging reckless risk-taking.

The annual monetary conference at the mountain retreat in Jackson Hole, Wyoming, generally provides a chance for global policy-makers to set aside day-to-day concerns for more scholarly exchanges.

The upheaval stemming from subprime mortgage turmoil raises the stakes for Bernanke to show he is sensitive to the stresses gripping world financial markets.

The Fed is behind the curve and everybody on Wall Street knows it, CNBC television commentator Larry Kudlow said on Tuesday. The handwriting is on the wall, and the Fed missed it.

Bernanke's remarks will be released at 10 a.m. EDT on Friday.

LONG SILENCE

He hasn't spoken on the economy in about a month and a half, and it's clearly incumbent upon him to make some kind of statement, said James O'Sullivan, an economist for UBS in Stamford, Connecticut.

Not everyone is certain Bernanke will use the address to go beyond the published topic of the relationship between housing and monetary policy.

We expect Bernanke to try avoiding any signals on current monetary policy, Lehman Brothers said in a commentary on Wednesday, barring renewed market disruptions which might force him to do so.

The Fed on August 17 acknowledged risks to growth had increased appreciably and lowered its discount rate, which it charges banks for loans, by a half-percentage point to 5.75 in a bid to restore credit flows, particularly in commercial paper markets.

The surprise move drew praise as a judicious, limited intervention, and appeared to have a calming effect.

But skittishness lingers. U.S. stock indexes slid more than 2 percent on Tuesday after Merrill Lynch warned that struggling stock markets will hurt bank profits and reports on consumer confidence and home prices added to concerns about the economy.

The U.S. central bank has refrained from lowering its benchmark federal funds rate, which has held steady at 5.25 percent since June 2006. Minutes of the Fed's last regular policy-setting meeting August 7 showed officials were aware of deteriorating market conditions, but held fast to the view that inflation concerns were paramount.

DEEPER TOLL

Bernanke's speech could provide clues about his view of the severity of the problems affecting mortgage markets and credit availability and their toll on the broader economy.

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.

The Fed held steadfastly in recent months to an outlook that growth will pick up, even as inflation remains a risk in a tight job market.

Fed policy-makers are likely to want to see more economic data following the recent financial market turmoil before they shift their outlook. Reports on hiring and activity in manufacturing and services industries in August won't be available until after the Jackson Hole meeting.

Bernanke has demonstrated thus far that he's a steady hand at the Fed, said Michael Darda, chief economist with MKM Partners in Greenwich, Connecticut. He's a guy that sticks to the script, sticks to the forecast, and when they alter the forecast, he lets everyone know.

Ben Bernanke