THIS month America will reach two economic milestones. The Federal Reserve's “quantitative easing”, or QE—loosening monetary policy by buying bonds with newly created money—will draw to a close. And the recovery QE was designed to spur will reach its second anniversary.

Yet no one will be celebrating at next week's meeting of the Fed, where officials are almost certain to reiterate that the $600 billion programme of bond purchases will end this month. For all the monetary and fiscal stimulus applied to the economy, the recovery has been a disappointment. Though the chance of renewed recession is slim, in a dreary rerun of last year a promising acceleration in hiring and spending is fizzling.

Since recession ended in June 2009, GDP growth has averaged 2.8%, roughly its long-term trend. After so deep a slump, the pace is usually much faster. The gap between actual and potential GDP has been stuck at around 5% since late 2009 (see chart 1). From some angles, the picture is even worse. Measured by totting up income rather than spending, the economy is no bigger than in 2006. The proportion of working-age people with jobs is lower than in the trough of the recession.

This week Larry Summers, who until December was Barack Obama's chief economic adviser, gave warning that America was halfway through a lost decade similar to Japan's in the 1990s. Back then American policymakers were keen to lecture the Japanese on how to escape their predicament. Tim Geithner, then a Treasury official and now the Treasury secretary, would press his Japanese counterparts for more fiscal stimulus. Ben Bernanke, then an academic and now the Fed's chairman, called the Bank of Japan's failure to cure deflation a case of “self-induced paralysis”.

Japanese lessons

Indeed, America's initial response to its own crisis and recession drew on the lessons from Japan. About $1.2 trillion in fiscal stimulus has been injected since Mr Obama took office. The Fed cut interest rates to nearly zero and then, in two rounds of QE, bought $2.3 trillion of government and mortgage-backed bonds.

But lately American leaders have shown signs of the inertia for which they used to berate Japan. Mr Obama has suggested extending a cut in employees' Social Security tax, enacted in December, but most of his, and Republicans', attention is now given to cutting the budget deficit. Fed officials who enthusiastically backed QE have little taste for more.

Since the Depression American governments have considered it their duty to use macroeconomic policy to reduce unemployment. That duty was codified in the Employment Act of 1946. Henceforth, says Brad DeLong, an economic historian at the University of California, Berkeley, “an administration that failed to achieve acceptable macroeconomic performance was a failed administration.”

Later policymakers learned they could not pursue higher employment if it meant fuelling inflation with slack monetary policy or crowding out private investment with public borrowing. Neither is happening today. The lack of appetite for further stimulus has more to do with a belief, particularly among Republicans, that intervention on the present scale is both ineffective and dangerous. John Boehner, the speaker of the House of Representatives, says: “Many of our problems can be traced to a misguided belief…that [the economy] can be controlled or micromanaged.” Mitt Romney, the front-runner for the party's presidential nomination, said in a candidates' debate on June 13th that Mr Obama “didn't create the recession, but he made it worse and longer.”

Those views have won academic backing from John Taylor, an economist at Stanford University. Mr Taylor traces the economy's ailments to the abandonment of predictable, rules-based fiscal and monetary policies. The bail-outs and stimulus of George Bush junior and Mr Obama, and the Fed's emergency lending and QE, he argues, sowed paralysing uncertainty. He believes that deep spending cuts would reverse this effect and thus generate private spending and growth.

For this there is only tenuous empirical support when interest rates are close to zero. A stronger case against further fiscal easing comes from Carmen Reinhart of the Peterson Institute. In the 15 crises she studied with her husband, Vincent Reinhart of the American Enterprise Institute, policy responses varied widely but the result did not: prolonged, subpar growth. The reason was that the crises had a common cause: excessive debt that could be corrected only by a long period of deleveraging. American households have made a start on this, but their debts are still far above the pre-2000 trend (see chart 2). Mrs Reinhart thinks more fiscal stimulus merely postpones the necessary adjustment, because it replaces private debt with even greater public borrowing.

The euro zone's sovereign-debt crisis has reminded governments everywhere that heavy public debt risks more than just crowding out private investment. It can, in the extreme, bring on insolvency.

The chances of a Greek-style crisis in America are low, given the dollar's reserve-currency status, but not zero. On today's trends America's debt is rising unsustainably. By 2016 its overall government deficit will be 6% of GDP, the IMF estimates, well above the comfort level for debt stability. Almost none of that deficit will be the product of the economic cycle (see chart 3).

The merits of more fiscal stimulus have been fiercely debated inside the Obama administration. Christina Romer, who was chairman of Mr Obama's Council of Economic Advisers, argues that near-term fiscal stimulus, by boosting employment and income, lessens the pressure on households to pay down debt whereas premature austerity could worsen the cycle of weaker growth and deleveraging.

Since Mrs Romer and Mr Summers left the White House last year, however, the opposite view has gained. In a recent meeting an official repeatedly told reporters that the administration's focus on deficit reduction was necessary to maintain confidence. This may be as much a concession to political reality as a statement of economic preference. The White House is negotiating deficit cuts of between $1 trillion and $4 trillion in the next 10-12 years to win Republicans' agreement on raising the limit on federal debt. Without an increase, the Treasury would be unable to pay some of its bills come August 2nd.

Mr Obama's advisers would still like to couple short-term fiscal stimulus with longer-term tightening. Recently officials have suggested extending the payroll tax cut agreed on last December, which is due to expire at the end of 2011, for a year. Mr Summers has called for a cut in employers' payroll tax, too. Administration officials think either could be part of a package that reduces the deficit over ten years and raises the debt ceiling. But it is unclear whether Republicans will go along.

The bounds of bond-buying

When the Fed meets next week, it is almost certain to keep the quantity of its bond purchases unchanged. It will replace maturing holdings, but it will not signal a third round of QE. This is largely because circumstances are less dire than when the second round (QE2) began last autumn. At the time private job growth had slowed markedly and core inflation (ie, excluding the prices of food and energy) had fallen to less than 1%, well below the Fed's unofficial target of 2%. QE2 (or the anticipation of it) had the desired effect: it initially nudged down Treasury yields, squelched fears of deflation, encouraged investors into risky assets, such as stocks, and pushed down the dollar.

Fed officials think that the economy's weakness now reflects interruptions to Japanese supply chains and higher petrol prices, both of which are fading. Growth, they reckon, should rebound to above 3% (at an annual rate) in the second half of the year. Core inflation rose to 1.5% in May. If inflation falls back and the economy continues to stagnate, the Fed may consider easing again. It could do this in various ways, such as setting an explicit target for long-term interest rates, focusing future bond-buying on particular maturities or restarting purchases of mortgage-backed bonds.

But for further QE the bar is set high. The benefit would be limited and the costs higher than before. It would complicate the Fed's job of eventually shrinking its balance-sheet. Some Fed officials worry that its holdings of bonds could lose value when rates rise (though that would not affect its operations).

The political backlash would be fierce. QE2 drew heavy fire from abroad, from Republicans on Capitol Hill and from within the Fed. Some Republican senators cited QE2 as a reason for blocking Mr Obama's nomination of Peter Diamond, a Nobel prize-winning economist, to the Fed. (An uncited reason was revenge for Democrats' blocking of Mr Bush's nominees.)

Fed officials can ignore politics as long as it does not interfere with the efficacy of monetary policy. However, they worry that the backlash against QE2 may have played a part, albeit a small one, in the rise of commodity prices—by weakening the dollar and funnelling hot money into alternative assets and emerging markets whose central banks have been slow to tighten their own monetary policies.

With both fiscal and monetary policy near their limits, Democrats and Republicans alike are searching for other, preferably cheap, ways to spur growth. They agree that reducing regulation would help. Yet as far as getting money and credit flowing through the economy are concerned, regulation is heading in the opposite direction. Under last year's Dodd-Frank act, banks face new rules designed to prevent abusive and risky lending. A Fed official has suggested that the biggest, riskiest banks might have to hold capital of up to 14% of assets, far above the 7% norm agreed to in Basel 3, a new international accord.

Jamie Dimon, the boss of JPMorgan Chase, confronted Mr Bernanke at a conference on June 7th, saying that the crisis had already shut down the most dangerous parts of the financial system, from unscrupulous mortgage brokers to off-balance-sheet investment vehicles. “Now we're told there are going to be even higher capital requirements…and we know there are 300 rules coming. Has anyone bothered to study the cumulative effect of all these things?” No, Mr Bernanke admitted. “It's just too complicated.” Besides, he pointed out, the priority was prevention of another crisis.

With fiscal and monetary options being closed off, America's policymakers may have limited ways forward. But remembering where this journey started, they are in no mood to retrace their steps.