As a Princeton University professor, Ben Bernanke castigated the Bank of Japan in 2000 for a "case of self-induced paralysis" that led to a decade of stagnation. Now, the Federal Reserve chairman may be allowing the U.S. central bank to fall into the same trap after its second round of quantitative easing ends this month.

By all but ruling out another cycle of bond purchases, Fed officials have left themselves with little in the way of policy options to respond to slowing growth and rising unemployment. This raises the risk that the U.S. will remain saddled with what Bernanke himself has called a "frustratingly" sluggish recovery that leaves millions of Americans out of work.

"I worry that QE3 will be hostage to QE2," said Vincent Reinhart, a former director of the Fed's monetary-affairs division who is now a scholar at the American Enterprise Institute in Washington. "That may lead to that self-induced paralysis" in further easing policy to aid the economy.

Fed officials, who begin a two-day meeting tomorrow to plot monetary strategy, are betting the slowdown will prove short- lived and growth will pick up from July through December as shocks from Japan's earthquake and an oil-price surge fade.
GDP Outlook

Private economists agree. After growing at a 2.3 percent annual pace this quarter, the world's largest economy will expand at a 3.2 percent rate in the second half of the year, according to the median forecast of 67 economists surveyed by Bloomberg News from June 1 to June 8.

Economist Allen Sinai, who sees growth strengthening to between 2.5 percent and 3 percent in the second half and 3 percent in 2012, called the recent stock-market swoon a "consolidation" and forecast that the Standard and Poor's 500 Index of stocks will rise as high as 1,450 by the end of the year. It was at 1,271.50 on June 17.

The president of Decision Economics in New York also said the "new trading range" for the yield on the 10-year Treasury note is 2.75 percent to 3.375 percent as the Fed responds to the recent economic slowdown by putting off any move to tighten credit until next year. The yield was 2.91 percent as of 9:54 a.m. in London, according to Bloomberg Bond Trader prices.

The danger is that, once again, forecasts for an improved economy prove too optimistic. Economists polled by Bloomberg began 2011 looking for 3.1 percent expansion this year; they now predict a 2.5 percent rate. Fed policy makers are likely to follow suit this week.

David Fuller's view I think the headline is too pessimistic. Historical evidence suggests that even with the right policies it takes between three and five years, on average, for an economy to recovery from a recession caused by a credit and insolvency crisis.

If we date the beginning of the current recovery from the beginning of 2Q 2009, the USA is only in the fist quarter of the third year of its recovery.

America's financial strength is in the balance sheets of its multinational corporate sector. However, these companies have expressed reluctance regarding spending and recruiting in the USA while there is so much uncertainty concerning tax and regulatory policies.