Monetary Policy

The Fed meets this Tuesday to discuss monetary policy.
The FOMC is widely expected to leave the Fed Funds Rate
at 5.25%.

The short rate indicators I track most closely are starting
to tilt toward ease, but not persuasively. Short term business
credit demand momentum is slowing but is still strong. Production
is slowing but services have perked up. Upward pressure on
capacity utilization has eased, but development of slack is not
assured. Finally, my short term credit demand vs supply pressure
gauge has eased some, but a fair portion of the easing up in
the reading reflects faster growth in the supply of loanable
funds. I guess if I was in the Fed's shoes now I might want
to leave the FFR% unchanged just because it looks easy to make a
mistake or a misread that could result in whipsawing the markets
within a few months. In short, a change here might involve too
fine a call.

The FOMC has expanded basic monetary liquidity for the holiday
season. It started the process late in the year and It may have
acted with even more forbearance had not cash and checkables
fallen to such low levels in the system.