Amadeusz Juskowiak

Fed data suggest stable us 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 policymaking 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 Feds policy has been unchanged up to today

Although Volckers 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 todays data which covered the twoweek bank statement period ended yesterday

This need for additional reassurance was made all the more acute by the Feds decision yesterday to drain reserves from the banking system by arranging overnight matched salepurchase agreements for the first time since April of last year economists added

Todays data showed that the draining action was for a fairly large 39 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 couldnt have waited until the start of the new statement period today If it had it would have missed its reserve projections added Security Pacifics Bannon

A Fed spokesman told reporters that there were no large singleday net miss in reserve projections in the latest week

Economists similarly shrugged off slightly higherthan expected adjusted bank borrowings from the Feds discount window which averaged 310 mln dlrs a day in the latest week compared with many economists forecasts of about 200 mln

For the twoweek 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 JS 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 618 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 Chicagos Johnson Banks excess reserves averaged 103 billion dlrs a day in the latest statement period down from 150 billion in the previous one

After the Fed declined to assign a 1987 target growth range to the wayward M1 money supply measure last week little attention was paid to a steeperthananticipated 21 billion dlr jump in the week ended February 16

Looking ahead economists said the Fed will have to tread a fine line between the dollars progress in the international currency markets and the development of the domestic economy

The market has perhaps exaggerated the dollars effect on Fed policy said First Chicagos Johnson Of course it will take the dollar into account in future policy decisions but if the economy is weak it wont pull back from easing