An important week awaits us dear reader, where data on inflation, housing, and manufacturing activity will reveal further hints over the outlook for the recovery, as the U.S. economy continues to show more signs that the worst recession since WWII is indeed coming to an end, though it will probably take some time before the U.S. economy can fulfill its long term growth potentials.The start this upcoming week will be with data from the manufacturing sector, where the empire manufacturing index is expected to show that activity continued to rise in February, the ISM manufacturing index already signaled that manufacturing activity is still expanding over a strong pace, as the sector seems to have put its worst slump since the early 1980s behind its back.

Moreover, industrial production is expected to have risen in January inline with the ongoing recovery in economic activity, where production levels are starting to rise gradually amid the recent improvement in demand levels, though demand remains somehow weak as conditions are still challenging, yet we can’t deny the ongoing improvement.

Moreover, data from the housing sector will be released this upcoming week, where the housing starts are expected to show improvement in January, while the building permits are expected to show deterioration, where this indeed signals that the housing market is still recovering from its worst slump in more than 7 decades.

The housing market has been able to recover amid the huge support that the U.S. government provided for house owners, while the U.S. government also approved a tax credit for first time buyers, and accordingly demand for houses improved, yet with unemployment standing near record highs alongside tightened credit conditions, and rising foreclosures, the housing market will probably remain under pressure for some time.

The outlook for inflation in the United States remains one of the major threats for the upcoming period, where the huge amounts of liquidity that were pumped into the financial system alongside the recent improvement in economic conditions might be able to ignite price pressures, not to mention that effects of rising energy prices on inflation, where oil prices continue to hover among the $70s a barrel level.

Upside risks to inflation are still under control for the time being, since the ongoing weakness in economic activity continue amid elevated unemployment and tightened credit conditions continue to weigh down on price pressures, however, as the recovery continues, we should expect price pressures to start building up and accordingly the Feds will have to start tightening their monetary policy in order to contain upside risks to inflation, yet according to the Feds’ chairman, Ben S. Bernanke, the Feds will keep interest rates near record low levels in order to make sure that the recession is over.

However, the Feds’ chairman signaled that the Feds are ready to withdraw excess liquidity from markets once they need to, where Bernanke highlighted a number of tools that the Feds can use in order to drain liquidity from markets, and Bernanke believes that such steps alongside a tightened monetary policy will be able to keep inflation under control.

The consumer price index and the producer price index will be both released this week, where expectations signal that price pressures are indeed building up on both fronts, however, core inflation levels are expected to remain under control, as the ongoing slack in economic activity continues to weigh down on prices.

The Feds will also release the Minutes for the FOMC meeting, where the FOMC decided to keep interest rates unchanged at the current target range between 0.0% and 0.25%, while all members except for one signaled their belief that interest rates will remain at exceptionally low levels, as Mr. Thomas opted to vote against such a statement, since he believes that the recent improvement in economic activity might force the Feds into tightening their monetary policy sooner than expected.

Meanwhile, we should expect more fluctuations in U.S. equity markets, as more U.S. companies will released their financial results, where we saw over the past period the mixed results from U.S. major corporations, which affected the general mood among investors, meanwhile investors will be following up with Greece, as the European country is still struggling with its debt problems, where this indeed ignited a huge wave of pessimism over the course of last week, so we should expect another hectic week for financial markets…