Economic Outlook: Fed watched for any move on scaling back asset purchase programme One word will dominate market thinking this week - tapering - whether and when the US Federal Reserve will start to scale back its $85bn monthly asset purchase programme. The Fed's Open Market Committee meets on Wednesday, and the following statement and chairman Ben Bernanke's press conference will be closely watched for any sign that the size and pace of purchases could be adjusted. Equity, bond and currency markets were very volatile after the minutes of the FOMC's last meeting in May revealed that "A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting...." However, markets paid less attention to the rest of the sentence ..."if the economic information received by that time showed evidence of sufficiently strong and sustained growth; however views differed about what evidence would be necessary and the likelihood of that outcome." Despite a generally positive employment report for May, it seems unlikely that economic developments since the last meeting will convince the Fed to change tack this month, with unemployment still high and Tuesday's inflation data for May likely to show core inflation still well below 2 per cent. Two other central banks will also figure prominently this week. On Wednesday the minutes of this month's meeting of the Bank of England's Monetary Policy Committee are published. Data and surveys have been pointing to an improving economic outlook in the UK and markets will look for any sign that three members of the committee (including outgoing governor Sir Mervyn King, at his last meeting) still think that additional quantitative easing is required. Change is unlikely as the BoE awaits the arrival of new governor Mark Carney, but the committee's comments on the recent encouraging data will be interesting. The Reserve Bank of India has a tricky decision at its meeting today. A cut in interest rates would boost a stuttering economy, but the rupee has fallen to record lows, prompting fears of higher inflation. The most important survey data published this week will be preliminary purchasing managers" indices for China and the eurozone, out on Thursday. Last month the manufacturing PMI for China, published by HSBC and Markit, went below the 50 level into contraction territory for the first time in seven months. However, the news for the eurozone was slightly better, as the pace of contraction slowed, and analysts expect this to continue in June, particularly in manufacturing. Given that the UK government is making slow progress on its stated aim to rebalance the economy, sustained growth will still rely on the hard-pressed household sector. Two releases this week will be relevant. On Tuesday inflation is expected to have risen last month, to 2.6 per cent from 2.4 per cent in April, while, on Thursday, retail sales figures for May will show if high street spending has bounced back from a 1.3 per cent fall in April. The chancellor George Osborne is due to give his annual Mansion House speech on Wednesday where he is expected to give his reaction to the upcoming Banking Commission report and to explain his thinking on the future of government holdings in banking groups Lloyds and Royal Bank of Scotland.