A very important week for the United States economy is coming our way, where major fundamentals are due to be released including data on manufacturing, housing, inflation, and the Feds’ monetary policy, and accordingly, we should expect a busy week for financial markets, as investors are still worried over the outlook for global growth and more importantly the outlook for the world’s largest economy.

The start dear reader will be with the empire manufacturing index which is expected to show that activity eased slightly in March, though the manufacturing sector is still expanding, where it seems that manufacturing activity still needs some time to fully stabilize from the worst slump for the manufacturing sector since the early 1980s.

Industrial production is also expected to show easing activity in February, where activity indeed started to ease over the past few months, meanwhile, capacity utilization which is a measure for how much resources are being used by factories, is expected to remain unchanged in February.

The Philadelphia fed index is also expected to confirm that activity slightly eased in the manufacturing sector, where the index is expected to retreat in March to 17.0 from 17.6 reported back in February, while the leading indicators are expected to show further expansion in activity, yet over a slower pace than previously reported, as the U.S. economy is still recovering from the worst recession since WWII.

The U.S. economy grew by an annualized rate of 5.9% fourth quarter, as rising inventories and investments supported economic growth, even though consumer spending continued to ease in the fourth quarter, yet the economy will probably lose some steam over the course of the first half of 2010, as conditions somewhat remain challenging.

Moving on to the housing sector, where activity has been easing over the past period amid elevated unemployment, tightened credit conditions, and rising foreclosures, and it seems that the housing market is still stabilizing from its worst slump in more than seven decades, where the housing starts and building permits are both expected to show that housing activity continued to ease in February.

The housing market still needs more time before it can reach full stability, however, the housing market managed to rebound from its bottom and it’s rather normal that we see some stabilization in housing market activity before the housing market can grow over a strong pace, since the pace of the housing slump was rather huge, and it surely needs time before activity can recover fully.

Meanwhile, investors will be fully focused on what the Feds have to say as they announce their decision on interest rates, since markets fully expect the Feds to leave the benchmark interest rates unchanged at the current target range between 0.0% and 0.25%, however, investors will be more interested in finding clues that might suggest when the Feds will reverse their monetary policy stance.

The Feds decided to raise the discount rate by 25 basis points to 0.75%, yet the Feds made it clear that this decision should not be considered as a reverse in monetary policy from Dovish to Hawkish, but it should be conceived as a “normalization” of the Feds’ policies, as the Feds undertook extreme measures in order to battle the worst financial crisis since the Great Depression, and given the recent development in economic conditions as well as financial markets’ conditions, it seems rather logical that the Feds will go back to normal measures.

Finally, investors will be also focused on inflationary data represented by the producer price index and the consumer price index, where both are expected to show that inflationary pressures are well under control, though rising energy prices might have affected headline inflation, yet core inflation remains rather subdued.

The Feds believe that core inflation will remain well under control over the next two years, while the Feds continue to signal that inflation should remain subdued for some time, since the ongoing weakness in economic activity alongside elevated unemployment, and tightened credit conditions should keep inflationary pressures restricted.

The U.S. economy probably won’t be able to grow over the same strong pace reported during the fourth quarter, at least not during the first half of this year, since economic conditions are still challenging, and it will take some time before we can see fully stability in economic conditions, however, the U.S. economy is on the right path to reach that desired stability, and it’s going to be a matter of time before the U.S. economy can meet its long term growth potentials…