A sharp retreat in oil prices has lent fresh credibility to Federal Reserve officials' predictions that the spike in energy and commodity prices would be a passing phenomenon.
As that view, espoused by Chairman Ben Bernanke himself, gains support, investors may find further hints this week in minutes from the Fed's April meeting that officials intend to keep official rates at record low levels for quite a while.
The prospect of continued easy money from Washington may help offset concern among investors, already anxious about signs of slower economic growth in many countries, that the weekend arrest of the head of the International Monetary Fund will further complicate the euro zone's debt crisis.
There are plenty of reasons to expect the U.S. central bank to leave its monetary policy unchanged for a period after it completes its controversial $600 billion bond-buying plan at the end of June.
For one thing, despite the energy price surges, underlying price pressures and wage growth remain tame. Secondly, unemployment remains far above levels considered normal despite recent improvements in the labor market.
Moreover, there is plenty of evidence suggesting economic activity is abating. New weekly jobless claims are again well above 400,000 per week, a level above which the jobless rate is unlikely to come down. Consumer spending, too, appears to have faltered as higher fuel and food costs bite.
You can't say the consumers are rolling over. But they are spending about 6.0 percent of their total spending on energy, said Carey Leahey, managing director at Decision Economics.
That's a share that has traditionally been a recession marker for the U.S. economy. Investors know that and consequently are starting to factor in the possibility of slower growth ahead, Leahey said.
A Philadelphia Fed survey of professional forecasters released on Friday saw a more subdued projection of 3.2 percent growth this year, compared with estimates for 3.5 percent expansion in gross domestic project envisioned in the first quarter. U.S. economic growth softened to a paltry 1.8 percent annualized clip in the first three months of 2011.
Even the U.S. stockmarket, which had been a primary beneficiary of generous Fed liquidity and has rallied for most of the year, has begun to look shaky.
As if domestic concerns were not enough, policymakers also see plenty of reason for worry when they look around the world.
Europe is mired in a debt crisis that has dragged on for over a year and shows signs of getting worse, with speculation rampant that Greece may have to restructure its debts.
Concerns about the ability of policymakers to get to grips with the crisis are likely to grow after the shock arrest of the IMF chief Dominique Strauss-Kahn in New York on the weekend.
Strauss-Kahn's lawyer said he will plead not guilty to the sexual assault charges and the IMF said it remained operational. But a Greek official said there would now probably be a delay to a European Union/IMF bailout for Athens in which Strauss-Kahn was closely involved.
A crisis of leadership at the Fund would especially worry EU nations, given Strauss-Kahn's central role in bailouts for Iceland, Hungary, Greece, Ireland and Portugal.
The chances are the successor won't be a European, and will want to rebalance the IMF's priorities away from its massive commitment in Europe, said Jean Pisani-Ferry, director of the Bruegel economic think-tank.
Euro zone finance ministers will debate Greece's debt crisis on Monday this week. Before Strauss-Kahn's arrest, German officials said no decision will be taken until a mission from the European Union, the European Central Bank and the IMF releases findings on the progress of Greece's reform efforts.
Top officials in both Germany and Greece have adamantly dismissed the possibility that Greece would abandon the euro, despite rumblings among some analysts that such a move might actually help the beleaguered southern European state.
Eurozone inflation is expected to have risen 2.8 percent in the year to April, according to a report due on Monday that should keep pressure on the European Central Bank to continue a push toward higher interest rates that began last month.
In earthquake- and tsunami-stricken Japan, monetary authorities have already said the economy is probably in recession, depriving world growth of yet another key engine at a time when some fear a renewed global industrial slowdown.
China, for its part, is making a concerted effort to restrain inflation after years of super-charged economic growth, leaving investors on constant watch for the next possible tightening in the form of higher reserve requirements.
This combination of negative factors coming from so many corners of the world could begin to dent U.S. manufacturing, which had been a bright spot in the recovery thus far. Two surveys of regional factory activity from the Philadelphia and New York Federal Reserve banks are slated for this week.
(Reporting by Pedro Nicolaci da Costa; Editing by Dan Grebler and William Schomberg)