Economic Outlook: Cooling down

Finance ministers from the Group of 20 nations begin a two-day pow wow in London Friday to prepare for a G20 summit in Pittsburgh at the end of the month.

In theory, the monetary policymakers are duty-bound to pave the way for the vote-dependent politicians in the follow up meeting. The dominant feature, however, may be a exercise in prompting the politicians in Pittsburgh to cool their heels.

Politicians like snappy headlines, but central banks say it is not time to pull back from some of the programs that have propped up the ailing financial system in the past 12 months.

Bankers say it is time to study strategies for withdrawing from liquidity measures with the added caveat that the financial crisis has put policymakers in uncharted waters. Governments, that is to say, politicians, are being crushed by reports of burgeoning deficits and ballooning debt. But the European Central Bank held firm to its bank-to-bank lending rate of 1 percent Thursday, calling for guarded optimism. Other banks have called for a review of strategies, but advocated caution.

"Today it is not the time to exit, but we are alert, we are permanently looking at the situation," EC bank president Jean-Claude Trichet said. "We have no pre-commitment in any respect."

Similarly, in the Aug. 11-12 Open Market Committee at the U.S. Federal Reserve, signs of economic recovery did not derail the recovery plan, with the Fed calling for zero to 0.25 percent interest rates to remain in place, "for an extended period of time."

Leaders of Germany, France and Britain already outflanked their finance ministers this week, calling for a united front to combat the huge commission checks that accompany risk taking in financial markets. It is, after all, risks that bankers take with someone else's money, at least part of the time.

But French President Nicolas Sarkozy also said that if rules were uneven or unevenly applied across the globe, some country would leave itself at a disadvantage, as talented investors would abandon their present positions to work in the country that guaranteed the largest pay check.

In Asian markets Friday, Japan's Nikkei average turned lower, down 0.27 percent. The Hang Seng index in Hong Kong rose sharply, up 2.82 percent. The Singapore Straits Times index rose 0.94 percent, while the S&P/ASX in Australia rose 0.13 percent.

In midday trading in Europe, the FTSE index in Britain rose 1.12 percent. The DAX 30 in Germany rose 1.03 percent, while the CAC 40 in France rose 0.66 percent.

On Friday, all eyes turn to the U.S. employment situation report, where unemployment is expected to tick up to 9.5 percent from the present 9.4 percent.