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.
  

