U.S. bank reserve, monetary anddiscount window borrowings data released by the Federal Reserve
today clearly indicate that policy is "on hold" and may not be
changed for weeks or even months, economists said.
    "The Fed is keeping policy at dead center and it is not
about to change policy unless something fairly dramatic occurs
on the economy," said John Williams of Bankers Trust Co.
    "These numbers contain no hint that a policy shift is in
prospect, nor do economic or financial developments argue for
policy change," said William Griggs of Griggs and Santow Inc.
    Fed data released today were all in line with economists'
expectations and similar to the numbers of recent weeks.
    The Fed said net discount window borrowings in the two
weeks ended Wednesday averaged 191 mln dlrs, up from 381 mln
dlrs in the February 25 statement period, but little changed
from 160 mln dlrs in the period before that.
    It said that banks' net free reserves in the latest two
weeks averaged 660 mln dlrs versus 675 mln dlrs previously.
    Finally, the Fed said that the M-1 money supply fell 800
mln dlrs in February, with the broader M-2 measure down 1.6
billion dlrs and M-3 up an even three billion dlrs.
    Analysts said that M-1 last month grew at a negative 1.3
pct annual rate compared with minus 0.7 pct for M-2 and actual
positive growth of 1.0 pct annualized for M-3.
    February levels of M-2 and M-3 left the aggregates 18.2 and
20.8 billion dlrs under their respective upper growth limits
set by the Fed for 1987. The annual growth target for both is
5-1/2 to 8-1/2 pct. There is no M-1 target.
    "In the near term, there is absolutely no reason for the
Fed to ease policy, even apart from the slowdown in money
growth," said Stephen Slifer, economist at Lehman Government
Securities Inc.
    Economists generally expect a modest pickup in monetary
growth in March after February's anemic growth rates. However,
they stress that money growth will not be strong enough to
prevent the Fed from dropping interest rates further if the
economy shows evidence of weakness.
    Commenting on February's decline in the key M-2 aggregate,
Slifer said the main cause was a 3.2 billion dlr drop in money
market deposits at banks. This number has risen three to four
billion dlrs a month for a long while, he said, so February's
weakness is not likely to persist. Slifer expects modest M-2
and M-3 growth rates of 3-1/2 to four pct during March.
    Griggs said that M-2 and M-3 in coming months should return
to the five to seven pct annualized growth region and so
continue to present no problem for the Fed.
    Economists said the Fed appears to be very comfortable with
its current policy stance and it is likely to wait for perhaps
several more months of economic data before deciding whether or
not to ease its grip on reserves.
    Given the economy's fragility in many sectors, the analysts
agreed that there is almost no chance that the Fed will choose
to raise, rather than lower, interest rates when it next
changes policy.
    "Discount window borrowings in the past week were about as
low as the Fed can get them, although Fed funds held above six
pct," said Williams of Bankers Trust. Funds averaged 6.12 pct
in the week to Wednesday, up from 6.06 pct in the prior week.
    The Fed added reserves indirectly via one billion dlrs of
customer repurchase agreements last Friday, 2.5 billion dlrs on
Monday and two billion dlrs on Wednesday. On Tuesday, it added
reserves directly through two-day System repurchases.
    Williams and Griggs agreed the Fed will let the funds rate
be largely market-driven. They said it is focusing instead on a
borrowings target of around 300 mln dlrs.
 Reuter
