Earthquake in Japan. Unrest in the oil-producing Arab world. Sovereign-debt strains in Europe. Inflation in China.

The expanding list of global economic troublespots will give the U.S. Federal Reserve even more reason to stay in wait-and-see mode at its policy-setting meeting on Tuesday.

Figuring out how these assorted risks might affect the U.S. economy is tricky. Take rising oil prices, for example. They pose both an inflationary threat and a risk to consumption and economic growth -- problems that pull the Fed in opposite policy directions.

As for the earthquake, economists' best guess is that it will hold back Japan's already sluggish economic output in the short term, although the global impact looks modest.

The severity of the economic damage will depend on how long it takes to restore normal power, a prerequisite for the rebuilding efforts that should provide some economic lift.

The Japanese economy is now likely to take longer than we expected to exit its current lull, economists at Nomura wrote in a note to clients.

Harm Bandholz, chief U.S. economist at UniCredit Research in New York, said the net effect of all these global trouble zones was pointing toward a stagflation scenario but so far, the implications for the U.S. economy looked minor.

Therefore, the Fed will probably sit back and watch what's going on, Bandholz said.

Absent the global strains, the Fed might be thinking very differently about its policy stance. The unemployment rate has dropped by almost a full percentage point over the past three months, surveys show manufacturing and services activity strengthening and consumer spending has picked up.

Barclays Capital economist Troy Davig expects the Fed's policy statement to sound a bit more upbeat.

For example, the statement could acknowledge improvement in the labor market by describing progress toward their objectives as 'slow', instead of the 'disappointingly slow' description used in prior statements, Davig said.

UNDER PRESSURE

Inflation pressures are also building, particularly from oil and food prices. Figures due on Wednesday and Thursday are likely to show price pressures rising rapidly for U.S. businesses, and somewhat slower for consumers.

Fed Chairman Ben Bernanke has said the oil price spike will probably prove temporary and not have a significant impact on broader inflation trends. The Fed has argued that because the economy is still weak and unemployment elevated, businesses will have difficulty passing price increases on to consumers.

UniCredit's Bandholz disagrees.

He pointed to surveys showing that the gap between what companies paid for raw materials and the prices they received for selling their goods is as wide as it was during the stagflation era in the 1970s.

Thanks to massive cost-cutting measures on the personnel side, many businesses have thus far been able to absorb the higher raw material costs without price increases, he said. Sooner or later, however, they have to pass on their higher costs to the consumer.

RELATIVELY SAFE HAVEN

In the short term, however, the Fed's policy position looks clear -- ultra-easy money. Even Bandholz says the central bank has no business tightening now, with so many potential geopolitical problems swirling.

Indeed, the United States looks like a source of relative stability with risks emanating from Europe, the Middle East and Asia.

The confluence of recent events -- turmoil in Libya and the day of protest in Saudi Arabia, the downgrade of credit ratings for Spain and Greece, intensifying the euro zone credit crisis, the weaker-than-expected Chinese export data and surging food and oil prices -- led many to suggest that the two-year bull market in stocks was due for a correction, said Sherry Cooper, chief economist at BMO Financial Group.

Cool heads must prevail in this environment, Cooper added. The underlying fundamentals remain sound and Canada and the United States will be safe havens in this storm, although only on a relative basis.

(Editing by Dan Grebler)

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