Short Rates & Bank Liquidity

With the economy expanding and business short term loan
demand in a pronounced uptrend, The Fed still has
significant leeway to push rates higher without having
to drain the reserve base. A 4.00 - 4.25% FFR still looks
OK for year's end.

The banks remain in good shape as far as liquidity is
concerned. I define "liquidity at the margin" as the
ratio of C&I loans to US Gov't. securities holdings.
That ratio now stands at .85. This compares to a
reading of 1.48 at the last top in C&I demand in
March, 2001.