The U.S. Federal Reserve would give the clearest signal next week that its easy money stance is ending if, as some expect, it drops its two-year long pledge to keep interest rates close to zero for a "considerable time."
The Fed, which meets on Tuesday and Wednesday, first inserted that wording in its post-meeting statements in December 2012, promising then to maintain its highly accommodative monetary stance for a considerable time after its asset purchase program ends and the economic recovery strengthens.
Both have occurred.
The U.S. unemployment rate slipped below 6.5 percent, a Fed mark of healthier recovery, in April and is now at a six-year low of 5.8 percent even as more people enter the labor force. Its asset buying ended in October, when all but one of its voting members opted to keep the "considerable time" language.
The market has understood the term to mean at least six months, with current expectations for a first rate hike in mid-2015.
Since October, the more hawkish Dallas Fed chief Richard Fisher has said the Fed should drop the pledge, while more moderate Cleveland counterpart Loretta Mester told Reuters the reference was "really stale."
Some economists believe markets will take a change of wording in their stride, but others hark back to "taper tantrums" after the Fed first mentioned the idea of gradually reducing monetary expansion in May 2013.
"It has to be done at some point, but it's like taking off a sticking plaster. It's going to hurt," said Rob Carnell, chief international economist at ING, who questions central banks' propensity to use set terms rather than just rely on data.
Carnell believes U.S. headline inflation may well fall below 1 percent in the March-May period, when seasonal adjustments would give a greater weighting for a weak oil price than at present.
"It's then a hard sales act to start hiking in May or June," he said.
EU GROWTH SUMMIT
The week, for many the final working days before Christmas and New Year holidays, will conclude with a European Union Summit focused firmly on the faltering economy.
In an ideal world for some economists, France and Italy, the number two and three eurozone economies, would pledge more growth-driving reforms and budget restraint, providing cover for the European Central Bank to unleash new weapons to fight deflation.
Pressure on the ECB to start printing money and buying sovereign bonds rose further last week as its offering of low-cost loans to banks drew only tepid interest.
Banks have taken barely half the 400 billion euros ($497.4 billion) of loans on offer this year, implying they have little confidence in lending to the euro zone's backbone of small companies.
ECB policymakers have dropped hints that it could move in the direction of money printing as soon as January, but a small group of countries led by Germany are opposed, fearing it would lead to reckless borrowing by debt-laden states.
"(ECB President Mario) Draghi has seven weeks to get everyone in line. I don't think he'll pull it off before Christmas," said BNP Paribas Fortis Chief Strategy Officer Philippe Gijsels. "We're very much driven by central banks into next year."
As a reminder that the euro zone debt crisis is not fully extinguished, Greece's parliament holds the first round of its presidential vote on Wednesday. A likely third and final round is expected on Dec. 29.
If Prime Minister Antonis Samaras' candidate does not secure the required three-fifths of votes, more than the government majority, it would trigger parliamentary elections, which polls show anti-bailout party Syriza would probably win.
Samaras warned on Thursday Greece risked a "catastrophic" return to the depths of its debt crisis if his government fell, his comments driving Greek stock and bond losses.
However, while Greek 10-year bond yields have passed 9 percent, with shorter-dated paper even higher, the yield on 10-year Italian bonds was around 2 percent on Friday and for Spanish bonds just below.
The prospect of quantitative easing from the ECB, whose president promised in 2012 to "do whatever it takes" to save the euro, means this is not a repeat of 2010-2012, when fears of contagion to other EU members raged.
Those hoping for respite from concern over a China slowdown will have an eye on a private survey due on Tuesday. It is expected to creep back into growth territory in December after stalling in November.
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