'Lost Decade' or Temporary Funk? ; Economic Outlook Divides Fed

Summary

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The dramatic economic slowdown this summer has provoked an increasingly contentious debate among analysts, including an unusually public split among members of the Federal Reserve Board, over the U.S. economy's long-term outlook and the possibility of a Japan-like "lost decade."

The Fed's gloomy assessment this week, combined with a spate of poor U.S. economic numbers, is raising the stakes in the escalating argument between top economic thinkers fearful that the nation is headed for a decade of decline and stagnation versus those who think it's a temporary funk driven by businesses and consumers grappling with uncertainty from a deluge of regulatory and tax changes.

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'Lost Decade' or Temporary Funk? ; Economic Outlook Divides Fed

Both views are being bandied about not only in Congress' heated fights over stimulus legislation but in the cloistered halls of the Federal Reserve, where officials met earlier this week and made clear that they fear a further slowdown. In their statement, the Fed members declared that the recovery's pace "has slowed in recent months" and is "likely to be more modest in the near term than had been anticipated."

On Wednesday, all...

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