Among the three systemically important central banks holding policy meetings this week — the Bank of Japan, the European Central Bank and the Federal Reserve — the Fed is least likely to announce new policy measures. Yet its assessment of the economic outlook and, more important, its guidance on future policy measures will go a long way in determining the performance of financial markets.

Since its three unscheduled meetings in March, the Fed has calmed markets with its extraordinary interventions despite a continued sharp deterioration in the economy and employment prospects. Its emergency measures have reduced the risk of market malfunctions, restored liquidity and opened up key segments of the corporate bond market to significant new issuance by both investment-grade and high-yield companies. This has come against the background of a severe decline in employment, with more than 26 million people losing their jobs despite substantial fiscal support. Most observers expect this collapse in consumption, along with corporate investment and trade, to cause a record contraction in second-quarter gross domestic product.

Given the scale and scope of the Fed’s recent actions, few expect it to announce any new market interventions when the Federal Open Market Committee concludes its scheduled two-day meeting on Wednesday. Yet there will be much interest in how central bankers view the economic outlook and, especially, the future of existing and additional policy actions.

On the economy, it is unlikely that the Fed will have any greater clarity than most others, especially given that the health drivers remain uncertain. As such, the central bank should be expected to confirm the unprecedented speed and depth of the current economic contraction, highlight a foggy outlook and strike a balance of risk tilted to the downside.

The Fed’s chief communication challenge lies in what it signals about its policy intentions. This applies less to existing interventions and more to something that the Fed has not embraced yet but traders and investors have rushed to do so with enthusiasm — a backstop for the stock market should it be needed.

Look for the Fed to reiterate its a willingness to do more and for a long time when it comes to existing interventions. This will be welcomed not just by those who think that the stability of the most senior market segments — such as those for government bonds and money-market funds — plays a key role in minimizing the risk of finance destabilizing the economy, but also by investors lower down in the capital structure — all the way down to junk bonds, the most controversial of the Fed’s interventions so far. Indeed, it is this venturing far down the credit-quality ladder that has given rise to a “win-win” perception among some investors and driven a rebound in stock prices: They win if the economy rebounds strongly and corporate earnings are restored; they also win if it doesn’t because the risk of disorderly air pockets in stock markets would force the Fed to buy equities, just as it has with certain high-yield bonds. After all, nothing reassures investors more than the backstop of an infinite central bank balance sheet.

The Fed faces a difficult dilemma this week and beyond.

The last thing it would want to do is trigger market volatility by signaling that it has no intention to expand its balance-sheet purchase program to buy stocks. Instead, it may feel it’s wiser to keep its options open, hoping that an eventual economic upturn will validate the current stock market valuation.

But by doing so, it fuels a significant new element of moral hazard associated with the view of an ever more encompassing direct “Fed put” for financial investors. This distorts markets more and makes the Fed more vulnerable to accusations that it cares more about Wall Street than Main Street.

This important choice is not an easy one. Yet it needs to be discussed explicitly within the FOMC, with a detailed list of the associated benefits, costs and risks for each option. 

The better and faster this is done, the less likely that the continuing risk of “zombie companies” — resulting from what is likely to be a growing spaghetti bowl of government entanglement with the private sector — is accompanied by “zombie markets” than can neither allocate resources efficiently nor hold companies accountable for their performance. This would only add to the challenges of an economy likely to emerge from the coronavirus shock with lower productivity, higher debt, more long-term unemployed and operating in a more de-globalized world.

Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. He is president-elect of Queens' College, Cambridge, senior adviser at Gramercy and professor of practice at Wharton. His books include 'The Only Game in Town' and 'When Markets Collide.'