| NEW YORK
NEW YORK The sputtering global economy is complicating life for policymakers from Washington to Tokyo.
When the financial crisis erupted in 2007, authorities around the world began throwing nearly everything they had at the problem to avoid a re-run of the Great Depression.
Three years later, with the global recovery losing momentum, they find themselves in a tough spot yet again.
This time, if things get worse, they won't have as many tricks left in the bag to jump-start their faltering economies. What's more, whatever medicine they prescribe may well come with unpleasant side effects.
For the Federal Reserve, the medicine in question could be more large-scale purchases of U.S. Treasury bonds, though officials are unlikely to unleash that option at their policy-setting meeting on Tuesday.
Officials at the U.S. central bank disagree on many fundamental questions: How dark is the outlook? What should the threshold for further support be? Would pumping more money into the financial system be effective or could it do more harm than good?
"The economy is not falling apart, so easing now could send a signal that folks at the Fed are a little bit panicked," said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut.
"They need to make sure if they do more that the case for it is strong and the case is well-explained."
Further Fed easing could make things even more difficult for other countries, which are resorting to their own tactics to defend their economies.
Japan last week intervened in currency markets for the first time in six years to weaken its yen in a last-ditch bid to improve the competitiveness of its exports in a world of weak demand.
A strong yen curbs Japanese exports and weighs on production, making it harder for Tokyo to end the long spell of falling prices that dampens consumer demand and discourages corporate investment.
Although Japanese markets will be closed for holidays on two days next week, another round of foreign exchange intervention could still be forthcoming and will keep markets on edge.
Japan's unilateral move to devalue its currency sparked fears other countries might follow suit and deal a crippling blow to the global recovery. It also elicited stinging criticism from other countries.
"We don't like the behavior of the Japanese authorities," the head of the euro zone group of finance ministers, Jean-Claude Juncker, told reporters on Thursday.
European growth has been driven by Germany's export-led economy. Policymakers worry a strengthening euro, which rose nearly 5 percent in three days on Japan's move, could further slow Europe's recovery.
"Everyone seems to want a weaker currency in this environment to drive exports, but clearly not everyone can," said Mark McCormick, a currency strategist at Brown Brothers Harriman in New York.
A range of European data next week on manufacturing, consumer confidence and Germany's business climate is expected to add to evidence of a slowdown.
Coupled with revived worries about European debt burdens and the health of euro zone banks, the slowdown spells the potential for more anxiety for financial markets.
The European Central Bank kept rates on hold at a record low 1 percent this month and extended unlimited liquidity to banks until at least early next year, further delaying its exit from emergency lending measures.
Markets will watch any comments from ECB policymakers about the outlook for the economy and policy there. ECB President Jean-Claude Trichet will attend a euro-zone conference in Estonia on Sunday and Monday, while ECB Executive Board member Juergen Stark will speak in Italy on Friday.
The global backdrop will no doubt be on Federal Reserve officials' minds as they mull the costs and benefits of pumping more money into the financial system.
Fed Chairman Ben Bernanke said in late August that he would need to see a significant deterioration in U.S. economic conditions before easing monetary policy further. The Fed has already cut interest rates to near zero and bought $1.7 trillion in longer-term bonds.
It is unlikely the threshold for further large-scale purchases has yet been met, given a slightly better tone to recent data.
The data "lifts some of the pressure, and when you have a divided committee, if you are not pressured, you move sideways," said Vince Reinhart, a former senior Fed staffer.
Some Fed officials worry that if any further monetary easing is not effective in spurring the recovery, it would tarnish the U.S. central bank's much-needed credibility. Others worry about the potential for market disruption or sowing the seeds for inflation down the road.
"They will acknowledge the problem in the outlook and look for a compromise that kicks the can down the road," Reinhart said.
Some officials, including Dallas Fed President Richard Fisher, argue that the ball is now in the government's court to do more to support the economy.
The House of Representatives will vote on a package of loan incentives and tax breaks for small businesses next week.
With the unemployment rate stuck at 9.6 percent, Democrats are eager to show voters they are taking steps to help the economy as the November 2 congressional elections approach. Many of their job-creation efforts have been blocked by Republicans this year.