EARLY last year, the American economy seemed to find its footing at last. American GDP growth rose to its best quarterly growth rates of the recovery. The long drop in employment came to an end, and payrolls started rising again. The worst finally seemed to be over. But trouble hit. Petrol prices rose by a third in the first 5 months of the year. In April, a brewing European sovereign-debt crisis led to an outbreak of financial-market panic and rattled confidence. And a long spring and summer swoon ensued, during which it became clear that the recovery was in serious danger. All eyes turned toward the Fed as its early August meeting approached. Markets, which had been dropping, staged a brief rally in the days before the August 10 statement. The Federal Open Market Committee had ample tools available to it; the FOMC was clear about this. The economy stood dangerously close to a double-dip recession. How could the Fed not act?

In the end, it did—just barely. The FOMC decided to reinvest the proceeds of maturing securities, in order to prevent its balance sheet from shrinking. It was "the minimum possible non-contractionary action". Markets jeered; the S&P fell nearly 5% over the following week. Finally, in the late-August Fed retreat at Jackson Hole, Ben Bernanke made clear that more action was necessary and would be forthcoming. Eventually, the FOMC opted for a programme of $600 billion in government-asset purchases—enough to send markets up, to stabilise falling inflation expectations, and to bring an end to deteriorating employment reports. By the beginning of 2011, forecasters were predicting 4% growth rates and unemployment was dropping rapidly.

And then? You know the story. The global economy was battered by another round of rising commodity prices, by bad weather, by a devastating seismic and nuclear disaster in Japan, and ultimately by a recurrence of European crisis. The Fed's modest asset-purchase plan petered out in June, with the economy hanging in there, but growing at a level dangerously close to stall speed. Since then, debt crises in Europe and America have shaken markets, and new data revealed a much more bleak economic picture than was previously understood. With deflation and double-dip once again tripping off tongues, all eyes turned toward the Fed's early August meeting.

Once again, the Fed didn't fail to disappoint. Its language draws a darker picture of the economy:

Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed... The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, downside risks to the economic outlook have increased. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further.

The FOMC struggles to identify bright spots, and it acknowledges that downside risks are rising. Its response?

To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

You can be forgiven for missing it. The Fed's answer to the summer's economic developments is a tweak in the language, shifting the expected duration of exceptionally low federal-funds rates from "for an extended period" to "at least through mid-2013". Because the change provides more certainty about the expected window for near-zero rates, it counts as easing. It can nonetheless acurately be described as the minimum possible expansionary action.

Markets were hoping for more. Early gains in equity markets have mostly disappeared since the FOMC statement was released. Commodities are down again with the exception, yet again, of gold. And Treasury yields are plumbing new depths. As of this writing, the 10-year Treasury yields 2.11%—close to the 2.08% low hit in the depths of the 2008 economic meltdown. America has never looked more Japanese.

The statement clearly wasn't enough to restore confidence in continued growth; I'd go so far as to say that the Fed's timid action has increased the probability of a return to contraction within the year. It may nonetheless have broken the market panic; only time will tell. Should conditions continue to deteriorate, the Fed will probably step up its response, perhaps hinting at a renewal of its asset purchases at Jackson Hole or the September FOMC meeting. It seems ever less likely, however, that the Fed will avoid the "self-induced paralysis" that locked Japan into years of stagnation. That's the most puzzling and tragic thing about the path of American monetary policy. Few economists were better prepared to identify and avoid a descent into Japanese-style economic mire than Mr Bernanke. And yet his Fed is following its own momentum toward the very same fate.

UPDATE: Between the time this post was published and the markets' close, equity traders seemed to have a change of heart. Stocks closed up strongly, with the S&P rising nearly 5%. Perhaps after some digestion, markets decided that the outlook for easier Fed policy is actually much better now. Or perhaps something else is behind the move. A real end to market panic would be most welcome. Still, it seems difficult to read the Fed's statement as a commitment to keep the economy growing fast enough to bring down unemployment. Interest rates continue to point, strongly, toward a prolonged period of weak growth. If markets are newly confident that the Fed is not, in fact, paralysed, I certainly hope they're right.