An analysis of the current predicament in the United States leads one to conclude that while the risks of a double-dip recession are receding, the pace of the recovery is obviously subpar.

...[A] small precautionary action to avoid any risk associated with inadvertent tightening was prudent, in my view, in the midst of disappointing economic indicators.

That is how I interpret the decision announced following the August meeting—a small tactical change designed to preserve the level of liquidity provided to the system. I supported the committee's decision, but I do not view it as a fundamental change of outlook or strategy. I do not believe this change necessarily heralds the beginning of a period of further expansion of the Fed's balance sheet. Nor do I think the decision precludes a return to a policy of allowing the balance sheet to shrink on its own.

I think the decision has been over-interpreted in some quarters. These interpretations, along with alarmist commentary about deflation and a double-dip recession, are feeding an exaggerated sense of foreboding.

[A]lthough consumer credit shows some signs of thawing, responses to our Senior Loan Officer Opinion Survey on Bank Lending Practices suggest that lending standards to households generally remain tight.²

Despite the weaker data seen recently, the preconditions for a pickup in growth in 2011 appear to remain in place. Monetary policy remains very accommodative, and financial conditions have become more supportive of growth, in part because a concerted effort by policymakers in Europe has reduced fears related to sovereign debts and the banking system there...

Although output growth should be stronger next year, resource slack and unemployment seem likely to decline only slowly. The prospect of high unemployment for a long period of time remains a central concern of policy. Not only does high unemployment, particularly long-term unemployment, impose heavy costs on the unemployed and their families and on society, but it also poses risks to the sustainability of the recovery itself through its effects on households' incomes and confidence...

Maintaining price stability is also a central concern of policy. Recently, inflation has declined to a level that is slightly below that which FOMC participants view as most conducive to a healthy economy in the long run. With inflation expectations reasonably stable and the economy growing, inflation should remain near current readings for some time before rising slowly toward levels more consistent with the Committee's objectives.

I am increasingly uncomfortable with the lack of noticeable improvement in the labor market... I am probably marking down my 2010 [economic growth] forecast.

[The Federal Open Market Committee’s move to reinvest proceeds from mortgage-backed securities into Treasuries] had a larger impact on financial markets than I would have anticipated... My own interpretation is that the FOMC action led investors to believe that the economic situation in the United States was worse than they, the investors, had imagined. In my view, this reaction is unwarranted.

After a precipitous decline in late 2008 and early 2009, the U.S. economy stabilized in the middle of last year and is now expanding at a moderate pace. While the support to economic activity from stimulative fiscal policies and firms' restocking of their inventories will diminish over time, rising demand from households and businesses should help sustain growth.

I haven’t changed my forecast very much [recently.]  I’m waiting for some of the noisiness in the data to sort of clear up over the course of the rest of the summer and early into the fall.

 Growth in the third quarter may turn out to be a bit less than we saw in the first half of the year, though we think there is only a slight risk of a double dip.  

"We need clarity" in light of things such as the passage of major health-care and financial regulatory-reform legislation, and that is now lacking, Federal Reserve Bank of Dallas President Richard Fisher told CNBC television Wednesday.

"There is too much confusion" right now and that is leading to slower economic growth, Fisher said.

They’ve tightened some with the stock market down, the dollar up, and LIBOR up, which will feed through to some bank loans; below-investment-grade borrowing rates also are higher. That, along with the slowdown in Europe, is going to take something off of growth. I don’t think it’s going to be a major setback. But it will take something off of what already was a gradual expansion.

My sense is that, while the sovereign debt crisis in Europe is indeed a serious matter, the global recovery at this point looks very strong and seems unlikely to be derailed.

My best guess is we'll have continued recovery, but it won't feel terrific.

Although signs of recovery do abound, there are obviously significant headwinds to stability that remain.  Those headwinds come from structural imbalances from financial sector weaknesses and uncertainties from unanticipated environmental and political events.

It’s fair to say that my own thinking has recently turned a corner and I am becoming more and more confident that the economy is on the right track.