FED DATA SUGGEST U.S. CREDIT POLICY IS ON HOLD
Latest Federal Reserve data suggest
that the U.S. banking system is flush with reserves going into
a period of traditional tightness and that overall monetary
policy is on hold, economists said.
    "There is ample liquidity.... The Fed is not going to shift
gears at the present time or for at least another month," said
Maria Ramirez of Drexel Burnham Lambert Inc.
    "Technical and seasonal considerations aside, there is
nothing for the (credit) market to get excited about," added
Robert di Clemente of Salomon Brothers Inc.
    Adjusted bank borrowings from the Fed's discount window
averaged only 228 mln dlrs a day in the first week of the bank
statement period ending next Wednesday, compared with 233 mln
and 451 mln in the first weeks of the previous two periods.
    Another sign of abundant liquidity was the upward revision
in banks' net free reserves in the two-week period to March 11
to a daily average of 759 mln dlrs from an estimated 660 mln.
    Finally, a Fed spokesman told a press briefing that the 14
money center banks were absent from the Fed's discount window
for the third week running, with the latest week's borrowing
split between the large regional and the smaller banks.
    While modest open market intervention was apparently enough
to defuse any funding pressures in the first week of the latest
statement period, economists predicted that the Fed would have
to be more aggressive in coming weeks.
    The Fed injected temporary reserves directly and indirectly
on four of the five trading days via system and customer
repurchase agreements.
    "Fed funds will be coming under relatively intense
pressure," said Salomon's di Clemente, noting the approaching
month- and quarter-end and the round of holidays and tax dates
in April.
    "The Fed is faced with a large seasonal adding
requirement," said Ward McCarthy of Merrill Lynch and Co Inc,
who expects a permanent bill purchase next week and a coupon
purchase in early April.
    Economists were also heartened by further signs of a
deceleration in money supply growth, not only in the largely
discredited M-1 gauge but also in the more closely watched M-2
and M-3 aggregates.
    M-1 grew a mere 500 mln dlrs in the week to March nine,
compared with private forecasts of a 2.3 mln dlr rise. Weekly
M-2 and M-3 components also hinted at slower overall growth.
    "The M-1 increase was surprisingly modest and I suspect we
are on our way to another moderate set of M-2 and M-3 figures
for March," said Salomon's di Clemente. Merrill's McCarthy said
they could even come in below the bottom of their respective
target ranges.
    In February, M-2 was 18.2 billion dlrs below its upper
limit and M-3 was 20.8 billion beneath.
    Noting Fed Vice Chairman Johnson's encouraging remarks on
inflation today and recent interest rate cuts overseas, some
economists suggested this slowing in monetary growth could lend
support to calls for further accommodation here.
    "Our belief is that we could still get a move downwards in
rates before anything else," said Salomon's di Clemente, adding
that the key swing factor will continue to be the strength of
the U.S. economy.
    Jeffrey Leeds of Chemical Bank agreed that the economy's
health would remain the main influence on policy but, contrary
to di Clemente, he said that recent signs of faster growth and
inflation could lead to higher rates first.
    Drexel's Ramirez did not commit herself either way, adding
that the next major move may have to wait until April 14 when
February's U.S. trade data are due for release.
 Reuter
