Even if Ben Bernanke, George Bush and Congress win the battle to avert a recession this year, they risk losing the war to strengthen the economy for the long term.

Growth will get a boost in the second half of this year as consumers spend some of the $US107 billion ($A116 billion) in tax rebates passed by Congress and signed by Mr Bush this month. The US may suffer a letdown afterwards as the kick from the stimulus wears off, leaving the economy vulnerable to its underlying weaknesses: a retrenching financial industry, indebted consumers and slowing productivity growth.

''This is not a one or two-quarter phenomenon,'' says economist Neal Soss of Credit Suisse, who worked as an aide to former Federal Reserve chairman Paul Volcker. ''This is not a V-shaped event. It's a slow-growth scenario.''

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Fed officials see growth picking up to more than 2% next year as inflation ebbs to 2% or below. Fed chairman Bernanke, 54, is slated to discuss the central bank's forecast in testimony to Congress on Wednesday and Thursday this week.

So far, the Fed's deepest interest rate cuts since 2001 haven't helped the financial markets or the economy. What they have caused is an increase in inflation expectations, with the price of gold soaring to a record $US958.40 an ounce last week.

''The Fed is trying to stabilise the financial markets, the real economy and the price level with a single interest rate,'' says Louis Crandall, a former Fed official who is now chief economist at Jersey City, New Jersey-based Wrightson ICAP LLP. ''That's not easy to do.''

What's more, say economists Soss and Ethan Harris of Lehman Brothers Holdings, policymakers face structural changes in the economy that aren't so susceptible to the traditional tools of interest-rate and tax cuts. As a result, Mr Soss sees the economy expanding just 1.3% in 2008 and about 1.5% in 2009. Harris is even more pessimistic. He sees growth easing to 0.9% in 2009 from 1.1% in 2008 and 2.5% in 2007.

Fed officials acknowledged in the minutes of their last meeting, on January 29 and 30, that they were having trouble getting ahead of the credit squeeze in financial markets.

The financial industry is curtailing credit and conserving capital after a decade-long boom in profits went bust in the third quarter. Following mounting losses on past loans, banks have already taken write-offs of $US163 billion since the beginning of 2007.

A Fed survey released on February 4 found that banks had become stingier in granting credit during the previous three months. Fed officials say they expect that to continue, making it harder for the central bank to stimulate the economy through lower borrowing costs.

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