The US will avoid a severe and prolonged recession similar to Japan’s in the 1990s because US policymakers will do whatever it takes to avert such an outcome, the Federal Reserve believes.

The central bank’s willingness to embrace unorthodox measures is reflected in its latest supersized liquidity operations, which involve lending financial institutions $436bn in one-month advances of cash and Treasuries.

The Fed has also begun to put pressure on lenders to recapitalise and write down the value of home loans, while supporting policy initiatives to ease loan restructuring and support financing of new homes through the Federal Housing Administration.

The Fed moves come amid growing concern over the risk of a deep and protracted recession. This fear is driving many mainstream experts to advocate policy interventions once thought radical and extreme.

On Wednesday, John Lipsky, the number two official at the International Monetary Fund, said governments might have to intervene directly with taxpayer money to shore up the financial system. Hank Paulson, US Treasury secretary, is expected to unveil fresh initiatives on Thursday.

Most economists now believe the US is in recession. “The economic debate is shifting to how deep and long it will be,” said Richard Berner, chief US economist at Morgan Stanley.

Until recently, the mainstream view was that any recession would be mild because of the lack of imbalances in the corporate sector, strong global growth, Fed rate cuts and a $168bn fiscal stimulus.

However, a darker view has taken hold as the labour market has started to crack, house price declines have intensified and financial markets deteriorated further. Economists worry that overextended consumers could start pulling back.

There is also a growing awareness that monetary policy alone might not be able to contain the risk of a severe recession, because of wide risk spreads and constraints imposed by inflation.

The difficulties now facing policymakers “seem as great today, if not greater, than at any other time in the post-war period”, said William White, chief economist at the Bank for International Settlements.

Some analysts now expect a double-dip recession, with growth fading after a short-lived boost from the fiscal stimulus.

This bleak view is reflected in financial markets, where the return on five-year Treasury inflation-protected securities is slightly negative – suggesting that real interest rates will average less than zero for five years.

There is concern that banks are pulling back on capital at risk, drawing liquidity from the markets and triggering forced sales by hedge funds.

“You have three vicious cycles going on simultaneously,” says Lawrence Summers, a former US Treasury secretary.

“A liquidity vicious cycle – in which asset prices fall, people sell and therefore prices fall more; a Keynesian vicious cycle – where people’s incomes go down, so they spend less, so other people’s income falls and they spend less; and a credit accelerator, where economic losses cause financial problems that cause more real economy problems.”

Mr Summers says the situation is “qualitatively” though not “quantitatively” similar to that faced by Japan in the 1990s.

Fed officials insist the US will not end up like Japan, not because economics could not deliver such an outcome, but because the US system will not allow problems to fester.