While the U.S. appears to have sidestepped mid-year fears of an imminent double-dip recession, the country’s economic outlook remains fragile according to many economists. Major structural issues hang over the U.S. economy, including massive budget deficit and trade deficit concerns, a still-soft housing market, and weakness in the labor market. Consumers and governments continue to wrangle with debt, and austerity on both fronts does little to spark the engine of growth, namely consumption.
These domestic challenges, along with higher inflation in emerging-market economies, recession in Europe, and prospects for slower global growth in 2012 continue to loom over global markets.
With Ben Bernanke at the helm, the U.S. Federal Reserve has attempted to buttress the economy by pouring liquidity into the financial system over the past few several years, beginning with the Lehman Brothers collapse in 2008. However, despite the Fed’s aggressive pursuit of easy money policies, the economy has thus far been unable to shake its doldrums.
Although the idea was mostly dismissed just a few years ago, some economists are again saying the U.S. outlook is reminiscent of Japan, referring to the stagnant and deflationary “Lost Decade(s)” the Land of the Rising Sun has experienced since its equity market peaked at the end of 1989. Is this the same fate facing the U.S. economy? What ammunition, if any, does the Fed have left in its monetary policy arsenal to ignite economic growth?
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