Despite a modest improvement in consumer sentiment, a 16-week rally in the stock market, a slight rise in inflation, and signs of a recovery in manufacturing and retail sales, the US Federal Reserve is expected to cut interest rates once again today.
Spurts of optimism since the recession last year have dissipated and Fed chairman Mr Alan Greenspan and his colleagues will once again reduce borrowing costs to encourage business and consumer spending, analysts say.
The US central bank has reduced the benchmark interest rate 12 times in a row without re-igniting the US economy. The only question among commentators was whether the cut would be one-half or one-quarter of a per cent.
Even a quarter-point reduction would bring the key interest rate to its lowest level since 1958, when President Eisenhower was in his second term in the White House.
Consumer confidence remained steady in June as growing optimism about the future offset mixed sentiments about current conditions, according to a report yesterday by the New York-based Conference Board.
The index of consumer confidence slipped back to 83.5 in June from a revised 83.6 in May, but was above analysts' expectations of 82 points.
"While consumers' assessment of current conditions has lost ground since April, expectations for the next six months are up," said Ms Lynn Franco, director of the Conference Board's Consumer Research Centre.
"The recent turnaround in the stock market and an easing in unemployment claims should keep consumer expectations at current levels and may signal more favourable economic times ahead," she said.
In contrast to the decline in optimism about the current economy, consumer expectations for the next six months rose to 95.9, up from 94.5 in May.
The Fed will announce its decision on rates today after a two-day meeting of its policy-making committee in Washington.
Mr Greenspan has insisted throughout the prolonged slowdown and the longest jobs slump in half a century, that the American economy remains fundamentally sound.
The prediction that he will resume easing rates comes mainly from a sense of his impatience to stimulate a recovery and the Fed's concern about deflation.
The rally on Wall Street lost some momentum in recent days and on Monday fell 127.80 points, or 1.39 per cent, its sharpest one-day decline in more than a month.
A cut today would leave the Federal Reserve with little room for further manoeuvre. The federal funds rate, the interest rate that banks charge each other on overnight loans, is already down to 1.25 per cent, the lowest since July 1961 when John F. Kennedy was president.
In May the Fed seemed to express concern that the weak economy could push the US into deflation - a spiral of falling prices - for the first time since the 1930s.
