The Wall Street Journal reports:

Federal Reserve officials see the U.S. economy settling into a disappointingly weak recovery this year and next, and say they have done all they are prepared to do to spur growth for now.

The bleak picture contrasts with the booming global economy, which is complicating the decision making of the Fed, but lifting the fortunes of U.S. companies abroad.

The central bank’s policy makers substantially downgraded their projections for U.S. economic growth and unemployment, which they released Wednesday after a two-day meeting. “We don’t have a precise read on why this slower pace of growth is persisting,” Federal Reserve chairman Ben Bernanke said in a dreary press conference following the policy meeting. “Maybe some of the headwinds that had been concerning us — like weakness in the financial sector, problems in the housing sector, balance sheet and deleveraging issues — some of these headwinds may be strong or more persistent than we had thought.”

To top it off, it appears the Democrats’ insistence on tax hikes in the midst of this sagging economy has led to a breakdown in the debt-ceiling talks. A spokesman for House Majority Leader Eric Cantor (R-Va.) released this statement: :

Since early May, Vice President Biden has led meetings surrounding the debt limit. The Vice President deserves a great deal of credit for his leadership in bringing us this far. We have worked to find areas of commonality to meet the goal of identifying spending cuts commensurate with or exceeding the amount of the Obama Administration’s request for a debt limit increase. I believe that we have identified trillions in spending cuts, and to date, we have established a blueprint that could institute the fiscal reforms needed to start getting our fiscal house in order.

That said, each side came into these talks with certain orders, and as it stands the Democrats continue to insist that any deal must include tax increases. There is not support in the House for a tax increase, and I don’t believe now is the time to raise taxes in light of our current economic situation. Regardless of the progress that has been made, the tax issue must be resolved before discussions can continue. Given this impasse, I will not be participating in today’s meeting and I believe it is time for the President to speak clearly and resolve the tax issue. Once resolved, we have a blueprint to move forward to trillions of spending cuts and binding mechanisms to change the way things are done around here.

The president and the Democrats will have their hands full explaining why they must raise taxes when there is a deal to be had that will reassure the markets and provide real debt reduction.

Matt McDonald, a former Bush administration official and now a policy and communications consultant, e-mails me, “This is the second time the Fed has downgraded growth prospects this year, and it probably won’t be the last. None of this is good for the President’s reelection prospects and makes it hard for him to argue to voters his policies have had a positive impact on the economy.”

And as if to underscore the dismal news, the Wall Street Journal also reports:

Initial jobless claims rose by 9,000 to a seasonally adjusted 429,000 in the week ended June 18, the Labor Department said Thursday. The prior week’s figure was revised higher to 420,000, from an originally reported 414,000.

One does sense that the wheels are coming off the bus. The economic situation is deteriorating, the president is being harangued for his leadership on Libya and Afghanistan, and his poll numbers continue to dive. With a breakdown in the debt talks, one wonders what “accomplishment” Obama plans to tout in 2012.

In converting to a hyperpartisan campaign mode and shirking leadership on the economy, the president made a fateful error. Generally reelection campaigns are a referendum on the incumbent president and his record. Right now, it’s hard to defend either one.