Sean O'Grady: Shoot out at Jackson Hole - the world's central bankers take aim at deflation

It reads like a particularly unpromising joke. Charlie Bean, deputy governor of the Bank of England, Ben Bernanke, chairman of the US Federal Reserve, and Jean-Claude Trichet, president of the European Central Bank, are walking in the magnificent mountains of Wyoming.

They're at the annual get-together of global central bankers and external economists this weekend, held at the Kansas Fed's retreat, which happens to be in Jackson Hole, Wyoming, a beautiful spot for hiking (their tubby little bodies, that is, not necessarily interest rates).

Admiring the view, the three lords of finance stop for a moment to catch their breath. Ben asks Charlie how the UK recovery's going. "Choppy," he replies. He then turns to Jean-Claude, and asks him the same. "Very bumpy," says the Frenchman. Ben then thinks for moment and declares: "I just wish I could be as precise as you guys."

OK, I did warn you that it wasn't very funny. Central bank-based humour is unlikely to supplant sex or booze as a comedic resource, but you take my point, I hope.

Of all the world's major economies, the US is the one where the most acute dilemmas are being felt, if only because it is pretty much the only one where the full range of policy options are being kicked around in a lively public debate.

While the British and Europeans know what they want to do (even if they happen to be wrong), the Americans are still in a state of some flux. For now, at any rate, the British and Europeans have turned their backs on further fiscal action to sustain their choppy, bumpy recoveries and, if needs be, will rely on monetary policy to do the heavy lifting if a double dip hoves onto the horizon. In the US, thinking is more flexible.

It needs to be. Only a few months ago the US seemed to be fulfilling its usual role of economic locomotive, dragging the rest of the world out of the worst slump in three-quarters of a century.

Taking maximum advantage of the US Treasury's advantage of a seemingly infinite appetite for its paper, the Americans borrowed and spent their way out of trouble, complemented by an unprecedented monetary stimulus from the Fed.

Lately, however, the news has not been so good, and there is an unmistakable link between the withdrawal of specific federal subsidies and unwelcome economic developments. Nowhere is this clearer than in the world of real estate, where the last few days have seen some shocking numbers on sales of new and existing homes (the Americans still build sufficient new property for it to command its own index). Indeed the July figure for new home sales was an all-time low, and down about a third on last year.

The reason is that the $8,000 tax break available for first-time buyers expired at the end of June, with predictable consequences. Much the same goes for the aftermath of the end of the cash-for-clunkers scheme and the lay-off of temporary staff hired for the US Census. And it also goes, more generally, for the gradual fading of the government's $814bn stimulus plan.

The message is that the American economy is unable to flourish without the life-support offered by fiscal action. A realisation of that was behind Congress' decision, after a Republican filibuster, to extend the federal subsidy for unemployment pay of 99 weeks' cover.

"Are we going to engage in fiscal child abuse and borrow the money, principally from the Chinese, to pay for this? Or are we not? That's the question," asked Representative Jeb Hensarling, a Texas Republican at the end of the debate last month. A startling sort of remark, but it is the question.

Not that the Republicans want an end to the tax concession for the wealthy enacted by George W Bush that will expire at the end of this year. So, yes, the debate is confusing and hypocritical, as well as lively.

So should Americans postpone the inevitable contraction again? And if so, who should take action – the White House, the Fed, or both?

Nouriel Roubini, sage of our times, apparently thinks some sort of concerted action is needed, for fear of something much worse. He predicts that the respectable 2.5 per cent annualised rate of growth for the US in the second quarter will be downgraded to around half that by the official statisticians later today. Growth in the third quarter, he believes, will slow to "well below" 1 per cent in the third quarter. He puts the odds of a renewed recession at 40 per cent, which will give them something to talk about at Jackson Hole. Mr Roubini says Americans face a revival that will be "anaemic, sub-par, below-trend for many years given the need and process of deleveraging.

"With growth at a stall speed of 1 per cent or below, the stock markets could sharply correct, and credit spreads and interbank spreads widen while global risk aversion sharply increases. Thus a negative feedback loop between the real economy and the risky asset prices can easily then tip the economy into a formal double dip." A classic debt-deflation cycle, then.

Whether the Obama administration will pursue some further stimulus – and Treasury Secretary Tim Geithner and adviser Larry Summers appear keen on more support for small business and the extension of Bush's tax cuts for the middle classes only – the Fed will probably be the main immediate force fighting any renewed downturn.

Even by the usually intense standards of Fed-watching, Mr Bernanke's speech today will be weighed, parsed and dissected minutely. In modestly extending its "quantitative easing" programme – directly injecting money into the economy – a few weeks ago, the Fed has signalled in actions as well as words that it stands ready to rescue the US economy. But within the Fed there is also a lively debate.

Like the Bank of England's Andrew Sentance, the Fed has its own lone hawk, Thomas Hoenig, arguing for a tightening of monetary policy. Mr Hoenig just happens to be the head of the Kansas City Fed, and thus the host at Jackson Hole. No one will want to be rude to the hand that feeds them but it appears likely that Mr Hoenig will be in a minority of one once again.

In the speeches that British audiences will find most relevant, from Ben Bernanke today and Mr Bean tomorrow, we may well find some broad hints about these central bankers' willingness to launch another round of quantitative easing – "QE2" – to boost growth. But it may be simply too much to expect of monetary policy alone. It's just a pity that, while the Obama administration is also thinking imaginatively, our own Coalition Government is determined to stick to their spending cuts no matter what. They, and more to the point the rest of us, may regret that stubbornness.