The White House, Congress and Federal Reserve have tried to proactively avoid a recession. But the economy is one step ahead, writes Neil Irwin.

For months, the US government has been trying to get out in front of the problems facing the economy, most recently with the stimulus Bill that President Bush signed on Wednesday. But policymakers - from the administration to Congress to the Federal Reserve - are finding that efforts that seemed proactive at the time are in fact too slow to keep up with the rapidly spreading crisis in financial markets and deterioration in the economy.

The Bill Bush signed, which he called a "booster shot for our economy", will result in a tax rebate for adults with up to $75,000 in income or couples who make up to $150,000. The US Inland Revenue Service (IRS) will send out cheques starting in late spring of $600 for most individuals, $1,200 for most couples, and $300 for each dependent child.

When the first rumblings of a such a plan emerged in December, its advocates described it as a way for the government to move aggressively to prevent a recession.

In the past two months, the political system moved quickly and with an uncommon degree of consensus. But also in that time, the unemployment rate spiked, job growth turned negative, and surveys indicated that big segments of the economy are contracting.

As a result, former treasury secretary Lawrence Summers said this week in an interview that the stimulus package was "an appropriate response rather than an energetic move ahead".

Many economists now see the stimulus measure not as an insurance policy against a recession, but as a useful action to make sure, if there is a recession, that it is a mild one. "It will prime the pump for consumers," said Harvard economist Martin Feldstein, who once advised former president Ronald Reagan. "If people respond to it, they'll start spending, it will increase confidence and we'll be okay."

Summers called the collaboration of the White House and Congress "an example of government functioning considerably better than government has functioned on average in a long while".

The challenge facing policymakers is that the current economic distress is playing out with unusual speed. As recently as mid-December, only a handful of economic indicators pointed to a significant slowing in the economy. Since late December, almost all of them have. And every time one corner of the financial markets appears to be healing, problems crop up somewhere else, often a segment of the world financial system so obscure that even veteran Wall Streeters find it unfamiliar.

In November, it was "structured investment vehicles". In December, it was stresses in short-term money markets. Then came the possible downgrade of "monoline bond insurers" in January, and now, big problems in the market for something called "auction rate securities".

"The pattern is there's this new ugly thing crawling out from under the rock every month," said Ethan Harris, chief US economist at Lehman Brothers.

The same pattern applies to the Bush administration's efforts to deal directly with the mortgage foreclosure crisis. In late August, the president proposed changes to the Federal Housing Administration and a change to tax law that made it easier to renegotiate a loan - and drew praise for taking action to try to stem the number of foreclosures.

As the scale of the crisis has become more apparent, though, those measures have come to appear small-bore.

By the time the administration introduced a plan to freeze interest rates on certain sub-prime mortgages in December, many in Congress were criticising Bush for moving too timidly to deal with the housing crisis, a criticism that was repeated this week as the treasury rolled out a plan for major loan servicers to delay foreclosures to renegotiate loans.

And there is growing concern that the contagion is spreading beyond the subprime market as people with good credit histories are falling behind on house payments, car loans and credit cards at an accelerating pace.

As treasury secretary Henry Paulson acknowledged on Tuesday, "none of these efforts are a silver bullet that will undo the excesses of the past years".

The Federal Reserve has grappled with similar problems. In September, the central bank cut the short-term interest rate it controls by half a percentage point, more than investors were expecting. At the time, Fed leaders viewed the action as an exercise in "risk management", a bold signal that they were on the case and would act to prevent the problems in financial markets from spreading to the economy as a whole. The same philosophy was behind rate cuts in October and December that were undertaken despite worrisome signs of inflation.

"More than usually," said Fed vice-chairman Donald Kohn in a November speech, "the potential actions the Federal Reserve discusses have the character of 'buying insurance' or managing risk - that is, weighing the possibility of especially adverse outcomes."

But in the time since then, it has become clear that those rate cuts weren't buying insurance at all, but rather just keeping up with worsening economic fundamentals.

"Whatever you thought might be the conditions when you made those decisions, the actual conditions have turned out to be worse," Harris said.