Report: Washington’s efforts to stimulate economy might have averted recession

{mosads}”Immediately after the trough of this most recent downturn, the economy did not contract as much as it might have, while two and three years out, significantly more growth was experienced than likely would have been the case absent these policies,” the report stated.

However, while the stimulus and the Fed’s policies helped boost the economy, the report noted that they are not viable long-term solutions for economic growth. Rather, the stimulus worsened the nation’s debt profile, and policymakers are stuuck trying to balance fostering economic growth with exercising fiscal discipline.

“This deteriorating debt profile heightens the pressure on the U.S. government to wind down fiscal stimulus, which is necessary to addressing U.S. indebtedness but creates a drag that may weigh on future U.S. economic growth,” the report stated.

Furthermore, the report noted that the employment picture in the United States remains “hazy,” roughly four years after the financial crisis, and that significant questions remain about the U.S. economic outlook going forward.

Beyond the stimulus, the report credits the Fed’s easy money policies with helping steer the economy through the crisis. The Fed dropped interest rates to near zero in 2008, and has said it plans to keep them there until the end of 2014. The Fed also embarked on two rounds of “quantitative easing,” in which it purchased billions in bonds in a bid to further lower borrowing costs. The report claimed that the Fed’s moves added roughly 1 percent to economic growth in the last year, suggesting that the economy would have been stuck in neutral without it.

But challenges linger for the Fed as well. While the economy is failing to gain serious steam, the Fed might be running out of tools to help it along. Fed Chairman Ben Bernanke has not ruled out further projects, including a third round of easing, but each step the Fed takes brings new criticism from the GOP. Bernanke has also noted that many challenges facing the economy now largely fall out of the Fed’s sphere of influence.