FED DATA SUGGEST STABLE U.S. MONETARY POLICY

  Latest Federal Reserve data suggest that
  the central bank voted to maintain the existing degree of
  pressure on banking reserves at its regular policy-making
  meeting two weeks ago, money market economists said.
      "The numbers were a little disappointing, but I think we
  can take Mr Volcker at his word when he said that nothing had
  changed," said Bob Bannon of Security Pacific National Bank.
      Fed Chairman Paul Volcker told a Congressional committee
  last Thursday that the Fed's policy "has been unchanged up to
  today."
      Although Volcker's statement last Thursday allayed most
  fears that the Fed had marginally tightened its grip on
  reserves to help an ailing dollar, many economists still wanted
  confirmation of a steady policy in today's data, which covered
  the two-week bank statement period ended yesterday.
      This need for additional reassurance was made all the more
  acute by the Fed's decision yesterday to drain reserves from
  the banking system by arranging overnight matched sale-purchase
  agreements for the first time since April of last year,
  economists added.
      Today's data showed that the draining action was for a
  fairly large 3.9 billion dlrs, economists said.
      "The one thing that caught my eye were the relatively
  sizeable matched sales on Wednesday," said Dana Johnson of
  First National Bank of Chicago. "But there was a clearly
  justified need for them. There was nothing ominous."
      "The Fed couldn't have waited until the start of the new
  statement period today. If it had, it would have missed its
  (reserve) projections," added Security Pacific's Bannon.
      A Fed spokesman told reporters that there were no large
  single-day net miss in reserve projections in the latest week.
      Economists similarly shrugged off slightly higher-than-
  expected adjusted bank borrowings from the Fed's discount
  window, which averaged 310 mln dlrs a day in the latest week,
  compared with many economists' forecasts of about 200 mln.
      For the two-week bank statement period as a whole, the
  daily borrowing average more than doubled to 381 mln dlrs from
  160 in the prior period.
      "There were wire problems at two large banks on Tuesday and
  Wednesday, so I am not too bothered about the borrowings," said
  Scott Winningham of J.S. Winningham and Co. The Wednesday
  average rose to 946 mln dlrs from 148 mln a week earlier.
      Lending further support to the stable policy view was a
  relatively steady federal funds rate of about six pct in the
  latest week and persistently high levels of excess reserves in
  the banking system, economists said.
      "For the time being, the Fed is following a neutral path,
  with fed funds at about six to 6-1/8 pct," said Darwin Beck of
  First Boston Corp. "I expect it to continue in that vein."
      "Excess reserves fell but they are still over a billion
  dlrs," added First Chicago's Johnson. Banks' excess reserves
  averaged 1.03 billion dlrs a day in the latest statement
  period, down from 1.50 billion in the previous one.
      After the Fed declined to assign a 1987 target growth range
  to the wayward M-1 money supply measure last week, little
  attention was paid to a steeper-than-anticipated 2.1 billion
  dlr jump in the week ended February 16.
      Looking ahead, economists said the Fed will have to tread a
  fine line between the dollar's progress in the international
  currency markets and the development of the domestic economy.
      "The market has perhaps exaggerated the dollar's effect on
  Fed policy," said First Chicago's Johnson. "Of course, it will
  take the dollar into account in future policy decisions but if
  the economy is weak, it won't pull back from easing."
  

