It should a winning combination—it is certainly one most central bankers only get to dream about, says an Economist editorial writer in the latest issue. Yet the lowest interest rates for 40 years and subdued inflation have not yet brought about a golden age.

Indeed, as the members of the main policymaking body of the Federal Reserve -America’s central bank – hold a two-day meeting to review interest rates, they can reflect, somewhat ruefully, that decisions on interest rates are currently as hard as they have ever been. A rise in interest rates when the meeting ends on June 26th is unlikely, but deciding when to act is going to be difficult.

America’s sluggish economic recovery is causing all the trouble. Once it became clear that the recession had ended, that group of economists who always like to look on the bright side were seduced into thinking that a strong recovery was on its way. Even the most optimistic economy-watchers could hardly believe the preliminary figures for growth in the first quarter of this year when these were released on April 26th. An annual rate of 5.8% seemed too good to be true.

It was – the first revision cut that to 5.6% and it is possible there will be a further change when the final figure is published on June 27th. Still, even the revised figure shows an apparently strong rebound. It is partly the contrast between that figure and the rather more mixed picture painted by subsequent data which has dampened enthusiasm about America’s growth prospects for this year. An unexpectedly large drop in retail sales in May – down by 0.9% compared with April – sparked near panic in some quarters: maybe the American consumer, whose addiction to shopping had kept the economy afloat for so long, was tiring or, worse, losing his nerve.

In fact, taken as a whole, the flood of data about America’s economic performance suggests that a more realistic view is of a very modest recovery this year. Some forecasters are now saying the rate of expansion during the year will be as low as 2%, far below the impressive performance of the first quarter, and well below The Economist’s most recent poll of private forecasters, who, on average, reckoned growth would be 2.9% in 2002.

Whatever the exact figure, modest growth is consistent with recovery from the mildest recession on record. Alan Greenspan, the powerful chairman of the Fed, has been arguing this for months now, and the apparently erratic nature of recent statistics—some better than expected, some worse—will not come as much of a surprise to him.

The uneven picture will make Greenspan and his colleagues cautious, though. Having reached an almost godlike status and been given much of the credit for nurturing the long boom of the 1990s, Greenspan was criticized in some quarters for failing to check what he had once famously described as “irrational exuberance”. One school of thought believes the Fed should have done more to check the excesses of the dotcom bubble towards the end of the 1990s by raising interest rates more quickly than it did.

When the economy nose-dived at the very end of 2000, Greenspan started to cut rates very aggressively. Eleven cuts last year meant that he was able to recover some of his reputation: the speedy relaxation of monetary policy was given much of the credit for the mildness of the recession. Greenspan will not want to squander that credit by raising rates too soon and choking off recovery.