News

There is increasing optimism about growth prospects for the U.S. economy and more confidence that the global recovery is sustainable - a viewpoint shared by the Bank of Canada in its latest forecast.

But don't expect much change in language, let alone policy stance, from the U.S. Federal Reserve Board or the Bank of Japan this week.

A return to higher interest rates in the world's biggest economy is still far away, even though the Fed's rate-setting panel may give off slightly sunnier vibes about the future on Wednesday at the end of its two-day meeting in Washington. The Fed might even outline further steps to unwind some of the emergency measures it's used over the past year to prop up the U.S. financial system.

Ultimately, though, the Fed may try to temper any expectation that it's closer to backing away from its position of leaving borrowing costs near zero for an "extended period." That's in part because most of the U.S. economy's 2.2 per cent growth in the third quarter of last year was linked to fiscal stimulus spending that U.S. politicians lately seem very anxious to rein in.

On top of rock-bottom rates, the Fed has bought hundreds of billions of dollars worth of securities and bonds in order to give banks greater access to cash.

U.S. policy makers said in December that they'll end some of the emergency programs next month because access to credit is getting easier. But with unemployment at about 10 per cent, and little sign inflation will get out of hand, the Fed is likely to stay put for the foreseeable future - especially as midterm congressional elections in November draw nearer and calls to close the fiscal stimulus taps get louder.

There'll be more suspense in watching an increasingly fractious political battle over whether Fed chairman Ben Bernanke deserves another term. Even supporters of Mr. Bernanke acknowledge the Fed's years of easy monetary policy and its hands-off approach to banking contributed to the financial crisis, and there's a growing feeling on Capitol Hill that his policies to contain the crisis bailed out Wall Street firms at the expense of ordinary voters.

In Japan, which Bank of Canada Governor Mark Carney said last week would see "modest" growth over the next two years, central bank Governor Masaaki Shirakawa has already told regional chiefs ahead of a policy meeting this week that interest rates will stay near zero in a bid to stem declining prices - a problem the country has been battling on and off for about two decades.

Worse, like the United States, Japan is also struggling to control record deficits. And, according to the International Monetary Fund, a shrinking population and sluggish demand are pushing Japan closer to the day when China overtakes it as the world's No. 2 economy, an inevitability that outspoken new Finance Minister Naoto Kan said last week brings him a "sense of sadness." In other words, the Fed and the Bank of Japan will likely do little more this week than further illustrate just how slow and gradual the global recovery will turn out to be.