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The unemployment rate is finally edging lower and figures due on Friday are expected to show economic growth strengthened over the final three months of 2010. But the Fed may provide only a slightly more upbeat economic assessment at its next policy-setting meeting, which wraps up on Wednesday.

The central bank's word choices are always parsed and scrutinized. This week's statement will be particularly tricky because the Fed will need to acknowledge the improving economic data without sending a false signal that its $600 billion bond-buying program could end early.

But if Bernanke and company are too sparing in describing the recovery's progress, that could be interpreted as a lack of faith that this latest burst of economic vigor will last.

At its last meeting, in December, the central bank said the economic recovery was continuing but at too sluggish a pace to bring down unemployment, and the high jobless rate was weighing on consumer spending.

The jobless rate, however, dipped to 9.4 percent in December from 9.8 percent the previous month, still well above normal but down considerably from a cycle peak of 10.1 percent hit in October 2009.

As for consumer spending, it appears to have grown at a nearly 4 percent annual rate in the latest quarter.

"A key question is whether the Fed modifies its description of spending or looks past the data and maintains its downbeat view," said Barclays Capital economist Dean Maki.

"The latter would suggest that its views will be difficult to change," he said.

Maki said the central bank may find a middle ground by upgrading its description of spending growth, perhaps to "solid" from "moderate."

Likewise, the Fed could read the December dip in the unemployment rate as little more than monthly volatility or a promising sign.

Maki said officials may want to preserve some flexibility for now, perhaps by saying the rate of recovery was not robust enough to bring down unemployment "in a sustained way."

The Bank of Japan also holds a policy-setting meeting this week. Like the Fed, it is widely expected to keep interest rates unchanged near zero. Unlike the Fed, it is grappling with negative readings on key inflation gauges.

Economists polled by Reuters think Japan's consumer price index will show a 0.1 percent decline year-on-year. Excluding food and energy costs, core inflation is expected to be down 0.5 percent. The figures are due on Thursday.

UNEMPLOYMENT AND INFLATION?