The Federal Reserve is widely expected to raise US interest rates by a quarter point to 4.75 per cent tomorrow and the accompanying statement will be ritually dissected for any hints that an end to monetary tightening is in sight.

However, there are strong reasons for the Fed to signal that it has retained room for manoeuvre on interest rates.

Analysts at JPMorgan detect a lingering concern among policymakers about the Fed's preferred inflation measure - the core personal consumption expenditure (PCE) deflator - which, at 1.8 per cent, has moved to the top of the comfort zone. Rising energy prices have caused significant cost pressures, so it is a relief to policymakers that the core PCE has not already moved higher. However, global growth is strengthening, commodity prices remain firm and the US labour market is continuing to expand, so inflationary pressures could strength-en further.

Real US interest rates (deflated by the core PCE) will rise to just under 3 per cent and one of the main reasons this is expected to have a restraining effect on activity is the significant increase in household debt. A soft landing for the US property market is by no means guaranteed and analysts are keenly watching housing indicators for signs of stress.

The experience of the UK and Australia suggests, modest increases in interest rates can cause a marked slowdown in the property market and hit consumer spending so policymakers must strike a delicate balance.

"The Fed's policymakers have to judge the lags between theirpolicy actions and their impact on the economy," said Stephen Lewis of Monument Securities. "If the economy shows appreciable signs of slowing, the Fed will know it has already gone too far in tightening policy."

Confidence among US consumers remains robust. The figures for March, due tomorrow, are expected to edge higher to 102.3 from 101.7 in February owing to the improving labour market. But high petrol prices will limit gains. Confidence is underpinned by strong growth in personal income and spending which is expected to continue when February's data are released on Friday.

In Germany, the Ifo business climate index rose to its highest level since 1991 in February at 103.3, suggesting robust GDP growth in the first quarter. The headline figure for March is expected to edge back to 103.1.

The European Commission's confidence survey for March is due on Friday. Industrial confidence has rallied strongly and is expected to improve further in March. It is strongly correlated with industrial output, pointing to growth rising to 3 per cent year on year.

In the UK, lending figures for February from the Bank of England on Wednesday are expected to fuel hopes for recovery in property transactions this spring. The number of mortgage approvals reached 122,000 in January and net mortgage lending rose by £9.2 billion. Growth in consumer credit remains weak.