We are afraid the Fed does not have a clue

Mr. Bernanke was asked why the economy was lagging. "We don't have a precise read on why this slower pace of growth is persisting." The Fed has slowed their growth assumptions for the second half of the year. Many at the Fed would argue that the slowdown in growth this year is associated with one off events, an earthquake in Japan, the oil price shock from Libya and Arab Spring events, higher commodity prices, and the sovereign debt issue with Greece. These negative events are all contributors, but the simple fact is that the QE2 program did not work as well as expected. Flooding liquidity into the system was a viable strategy during a liquidity trap, but there is limited evidence that this would be effective. The wealth effect and inflation effect did not occur as planned.

Economic growth is still based on real effects like consumer and business expectations. Growth is based on innovation and change. Monetary policy has a limited role in these cases and Bernanke knows it. He has run out of new ideas, so the economy will limp along.