ROBERT SIEGEL, host: This is ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel.
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With the U.S. economy stuck in neutral, analysts are busy adjusting their forecasts to include the possibility of another recession. Most aren't predicting another downturn, just admitting the odds have increased. Meanwhile, policymakers at the Fed are divided about what to do next. The minutes from their last meeting released yesterday show some arguing for more aggressive action, while others think that would be a mistake.
NPR's Yuki Noguchi reports that policymakers at the Fed and in Congress are running out of ideas that haven't already been tried.
YUKI NOGUCHI: Sometimes, it takes a while, but economies usually do snap back after recessions. But recessions brought by financial crises play by their own rules, and it's harder to bounce back. That's especially true of the last one, which ended two years ago. The housing sector is a mess, banks still have troubled mortgages on their books, the job market remains bleak, and Vincent Reinhart thinks that there's a 40 percent chance we'll be in another recession within a year.
Dr. VINCENT REINHART: And I think of that as we're flying the plane at a slower speed and closer to the ground. That is, we are less resilient to bad shocks.
NOGUCHI: Reinhart is a fellow at the American Enterprise Institute. He's also former director of monetary affairs at the Federal Reserve. One of the things that troubles economists like Reinhart is not just that the economy could be headed off course, it's also that there are few tools left to address that should things get worse.
REINHART: The main problem we have - and that's about monetary and fiscal policy - if we were to slip into another recession is that policymakers have already been there and done all that.
NOGUCHI: Basically, the government has two methods of dealing with a recession. One is fiscal. The government spends money or cuts taxes to try to boost spending. The other is monetary. The Federal Reserve lowers interest rates, which is also designed to get people spending.
Here's where things stand now. On the fiscal front, with concerns about a huge budget deficit, there's little political will for a government spending spree. On the monetary side, the Fed has already pledged to keep short-term interest rates near zero until mid-2013.
In recent years, the Fed has also tried an unconventional approach. It bought over a trillion dollars in U.S. Treasuries to push down long-term interest rates in the hope that might spur the economy.
Mark Olson is a former member of the Fed's Board of Governors and now co-chair of a consultancy called Treliant. He says there's not much more the Fed can do.
MARK OLSON: It leaves us on the horns of a dilemma, I'm afraid.
NOGUCHI: Olson says the smartest move is also politically the hardest. Congress could pass a job stimulus program and, at the same time, reduce the long-term deficit through a host of painful cuts and tax increases. Doing that, he says, would assuage investors and get people spending again.
But Olson says what's economically rational is politically unlikely. It's been 70 years since we've dealt with an economic hole this deep, and frankly, he says, as a country, we're pretty spoiled.
OLSON: We're not accustomed to making the sort of sacrifices and adjustments that we had been willing to do in the past to move forward.
NOGUCHI: Without the ability to do that, and without access to the traditional monetary levers, what we're left with are a host of smaller ideas that try to tinker with the economy on the margins.
Karen Dynan is co-chair of the economic studies program at the Brookings Institution. She says targeted spending like extended payroll taxes and unemployment insurance helps. But the fundamental problem remains the same. There are still segments of the economy that aren't getting access to credit.
Dr. KAREN DYNAN: Big businesses that can go to the bond market, they're not having trouble borrowing at low rates. But there are a lot of small businesses out there that are finding it difficult or impossible to get credit.
NOGUCHI: She says until someone can figure out how to get money flowing to all the places it needs to go, it'll be hard for policymakers to fix the problem. Yuki Noguchi, NPR News, Washington.