Amid growing optimism about the outlook for the American economy, the Federal Reserve meets this week to decide whether to cut interest rates again. The decision looks to be more finely balanced than for many months

Speculations about which way Alan Greenspan will jump is once again a favourite preoccupation for economists. The renewed interest is easily explained: Mr Greenspan will chair a two-day meeting of the main policymaking committee of the Federal ReserveÑAmericaÕs central bankÑthis week, and attention is focused on whether another cut in interest rates is on the cards. Rates were cut 11 times during 2001 but, as optimism about an imminent economic recovery has strengthened, so has speculation that the Fed will decide to call at least a temporary halt to interest-rate cuts.

The guessing-game has been unusually intense lately, partly because of the belief among many economists that the worst is over for the American economy; and partly because the signals from Mr Greenspan and the Fed have been mixed. In a speech in San Francisco on January 11th, the Fed chairman appeared to be warning against optimism. “It is still premature,” he said, “to conclude that the forces restraining economic activity here and abroad have abated enough to allow a steady recovery to take hold”. Some read that as meaning that another rate cut was on the way.

Since then, though, comments from other Federal Reserve officials have suggested greater optimism about the short-term outlook. And when Mr Greenspan testified before the Senate Budget Committee on January 24th, he too seemed subtly to have subshifted tack. “There have been signs,” he noted, “that some of the forces that have been restraining the activity of the economy over the past year are starting to diminish and that activity is beginning to firm.” To some observers, this means: no rate cut.

The uncertainty about the Fed’s intention mirrors the uncertainty about the economic outlook. Since the American economy went into a nosedive at the very end of 2000, the economic data has been maddeningly difficult to read. Even well into last year, many economists reckoned that a recession could be avoided, pointing to the resilience of the American consumer in the face of falling share prices, slumping corporate profits and sharp declines in industrial production. Since consumption accounts for about two-thirds of American GDP, the optimists argued, the consumerÕs apparently unshakeable addiction to shopping would see America through the difficult patch.