The US Federal Reserve and the European Central Bank are expected to leave interest rates unchanged when they meet this month, analysts say.
Most economists are betting that the Federal Open Market Committee (FOMC) will keep the federal funds rate firmly anchored at two per cent amid lackluster economic growth.
Analysts say the Fed is caught between a rock and a hard place because a cut in rates could trigger fresh inflationary pressures while a rate hike could strangle fragile economic momentum.
Thus, Federal Reserve chairman Ben Bernanke and his fellow central bankers are expected to sit on their hands during a policy meeting set for tomorrow.
"I think the Fed is going to stand on the sidelines holding at two per cent. We're getting a very mixed economic picture right now," said Scott Anderson, an economist at Wells Fargo.
Anderson said the world's biggest economy is throwing off mixed signals, which makes it likely the Fed will not want to make any rash rate calls.
Official data revealed that the economy grew at a 1.9-per cent pace in the second quarter which marked an improvement from the first three months of the year, but the economy got a timely boost from a giant $168-billion emergency stimulus.
America's unemployment rate meanwhile ticked up to 5.7 per cent during July, according to another government survey. Economists say job losses this year are not as bad as in prior recessions, but the unemployment rate is now at a four-year peak.
Some analysts believe the $14-trillion US economy has already slumped into a recession – the government revised its tally for 2007 fourth-quarter growth last week to a negative 0.2 per cent – but others say the economic picture is not so dire and that a recession will be avoided.
Meanwhile, the European Central Bank holds an exceptional meeting this month amid signs of persistent market turmoil, but analysts expect interest rates to stay on hold even though the eurozone might be stumbling toward recession.
The ECB governing council, which does not usually meet in August, raised its main lending rate to 4.25 per cent last month to stem inflation, which is now at a record 4.1 per cent, more than double the bank's target of just below two per cent.
This time around however, "the ECB is on hold", Citibank analyst Juergen Michels said. The bank would "probably leave rates unchanged and give a 'no bias' statement" after the decision, he forecast.
"We expect the ECB to be on hold for at least the next 12 months," said Bank of America economist Holger Schmieding.
Eurozone economic conditions have deteriorated sharply in recent months, and manufacturing activity in the 15 member countries fell last month at the fastest pace in more than five years, according to a purchasing managers' index compiled by Markit.