As the new year progresses, policymakers around the world are asking themselves the same question: Is it time to halt stimulus policies? But the question seems almost unanswerable now as signs of inflation proliferate while the global economy has yet to find its feet. Zhu Daming, a Shanghai-based independent analyst, discussed this issue in an article recently published in the Economic Information Daily. Edited excerpts follow:

As they consider their next policy moves, global policymakers look to the United States for direction. But if history is a guide, the world's largest economy will be less likely to prioritize inflation over economic growth.

Renowned economist Alban William Phillips once suggested a trade-off between inflation and unemployment. In other words, inflation rises when unemployment goes down, and vice versa. The U.S. economy adhered to this Philips curve until the 1970s when both indicators rose simultaneously, a phenomenon known as stagflation. The Fed responded swiftly, raising interest rates that eventually led to a decade of economic downturn. With this painful lesson still fresh in their minds, the Fed will think twice before taking the same action.

In addition, inflation pressures may not be as heavy as previously believed. The U.S. economy is still bogged down by a bleak job market and industrial overcapacity, evidence that inflation is still some way off.

On December 28, the Fed released a plan, if only for consultation, for a term deposit facility that would pay interest to banks for a fixed period in order to lock up reserves. But this does not indicate an imminent change in strategy—it is more so a tool to monitor how the market is recouping its strength.

For China, it is also necessary to take inflation, unemployment, economic growth and interest rates into account.

Domestically, price surges in resources, houses and agricultural products are intensifying inflationary worries. But it is widely believed that an inflation rate under 4 percent would be less of a blow to the fast-growing economy, which would allow China to press ahead with its monetary and fiscal expansion while at the same time taking measures to stabilize asset prices.

However, drastic moves to choke off the capital markets and real estate sector would be devastating given their prominence as a pillar force holding up the economy. Worse still, with housing markets weighed down, speculators may otherwise turn to resource and agricultural sectors for rampant speculation.

Continuous government stimulus will put the Chinese economy on smooth track to reach a 9-percent growth rate in 2010, though uncertainties are still present. While the export sector reels from the global recession, the job market stress still lingers as an acute concern. It is therefore necessary for the government to widen domestic demands and hold up economic momentum. An abrupt change to current monetary policies, such as interest rate and reserve requirement ratio increases, may further harm the economy, which has yet to fully recover.