FED DATA INDICATE POLICY LIKELY TO STAY ON HOLD

  Federal Reserve data released today
  indicate that there has been no policy change in recent weeks
  and that none is likely at next week's Federal Open Market
  Committee (FOMC) meeting, economists said.
      "The Fed continues to be accommodative in its provision of
  reserves, indicating that there has been no policy shift since
  the beginning of this year," said Harold Nathan, economist at
  Wells Fargo Bank.
      "These numbers and other things suggest the FOMC will not
  change policy," said Robert Brusca of Nikko Securities Co.
      "The Fed is sitting fairly pretty now. There's no real
  reason for it to change policy," said Joseph Liro of S.G.
  Warburg and Co Inc.
      Liro said the economy is showing moderate growth and does
  not require immediate policy easing and the money aggregates
  may well end March at the bottom of their target ranges.
      All of the economists agreed that the Fed's major concern
  now is recent weakness in the dollar which early this week was
  heavily supported by central banks. They said fear of hurting
  the dollar will cause the Fed to be cautious in lowering
  interest rates further.
      Numbers released by the Fed today were all in line with
  expectations and similar to the data for most of this year.
      The Fed said that banks' net free reserves averaged 603 mln
  dlrs in the two-week statement period that ended on Wednesday
  versus 749 mln dlrs in the previous period.
      In the single week to Wednesday, banks' borrowings at the
  discount window, less extended credits, averaged 302 mln dlrs
  compared with 228 mln dlrs in the first week of the statement
  period. Meanwhile the Federal funds rate average edged up to
  6.14 pct from 6.08 pct.
      The Fed's failure to add reserves in the market on Tuesday
  and Wednesday surprised some, but economists said the data
  released today suggest it had no real need to add reserves.
      The Fed's absence may be explained by the lack of any
  pressing need for it to supply reserves and by a desire to
  boost borrowings in the second week of the statement period to
  meet its borrowings target, said Liro of Warburg.
      Liro said the Fed probably is shooting for a two-week
  borrowings average of 300-325 mln dlrs. The borrowings actually
  averaged 265 mln dlrs in the latest statement period and that
  was up from 191 mln dlrs in the prior period.
      Brusca of Nikko agreed that the Fed probably is aiming for
  two-week average discount window borrowings of around 300 mln
  dlrs. He said that would correspond to a Federal funds rate of
  around 6.10 pct.
      It is nearly impossible for the Fed to hit any borrowings
  target since the demand for excess reserves is erratic, said
  Wells Fargo's Nathan. He said the Fed is focusing instead on
  the funds rate and is trying to keep it roughly within a six to
  6-1/4 pct band.
      Upward funds rate pressure and a big reserve-adding need
  are anticipated for the statement period that began today.
   More
      Brusca believes the Fed will have to add 3.5 to four
  billion dlrs a day in reserves in this statement period. Liro
  puts the add need at around 3.9 billion dlrs.
      To partly address this requirement, many expect the Fed to
  add permanent reserves with effect next Thursday by offering to
  buy all maturities of Treasury bills on Wednesday. A similar
  coupon "pass" may be required later.
      There will be a greater demand for funds in this statement
  period because it includes the close of the quarter. Further
  upward pressure on the Federal funds rate may come from window
  dressing demand as the Japanese fiscal year ends on March 31.
  

