With signs of recovery drifting in, economists are debating how soon and how quickly the U.S economy will rebound, and whether further cuts to interest rates will be needed.

CIBC World Markets notes that the futures market is putting only a 25% chance on a quarter point cut by the Federal Reserve Board at month’s end. “But put that view on trial, and there’s a strong case that can be made to the FOMC jury panel for final rate trimming in January.”

CIBC is cautious about the prospects for recovery. “While we have continued to call for marginally positive first quarter growth, the roaring cheers about the latest data don’t seem fully warranted.”

TD Bank economists agree, noting, “The impending recovery may prove disappointing to many. The U.S. economy will not come bounding back to life. The recent resilience in consumer spending implies little pent-up demand by households.”

TD concludes, “Overall, the recent data continue to support the view that the current U.S. recession will prove brief and shallow, but the recovery will also prove lacklustre until at least the second half of this year.”

Both TD and CIBC point out that recent forecasts have assumed the passage of a stimulus bill worth US$75 billion to US$100 billion, or roughly 1% of GDP. “Instead, the bill has, at least for the time being, been swept aside by partisan differences, leaving a big hole in the growth forecast.

BMO Nesbitt Burns is more positive, noting, “Just as the U.S. economy led the way down, the world is looking for the U.S. to lead the way up, and signs are multiplying that a bottoming process is in place. What a difference three months can make to the outlook. In October, the 9/11 tragedy in all its ramifications hit the economy at a highly vulnerable time. Now, it looks as though the U.S. has weathered that storm very well, and is moving into a position to lead a global economic recovery.”

It sees the prospect for the lowest inflation in a generation and a decent rebound in growth for 2002. Although it concedes that one more rate cut may be in the cards. “Markets are leaning against the possibility of such a move, but the Fed typically does not stop easing until the jobless rate stops rising.”

“Low inflation may prove to be the cornerstone of the coming economic rebound. If demand falters, or if corporate earnings fail to grow enough to support the equity market resurgence, low inflation could permit relief in the form of lower bond yields. Otherwise, and more likely, as the economy strengthens, low inflation will prevent a runaway rise in bond yields that would block the recovery from gaining a firm foothold. In either case, the Fed stands ready to provide the support needed and has little reason to refrain from doing so. The coming expansion may soon be off to a solid start,” says BMO.