FED DATA PROVIDE NEW EVIDENCE OF TIGHTER POLICY
  U.S. banking data released today are
  too distorted to draw sweeping conclusions about monetary
  policy, but they do support the market's assumption that the
  Federal Reserve has started to tighten its grip on credit,
  economists said.
      "It's clear that the Fed has firmed somewhat. Discount
  window borrowings, net free reserves, the Fed funds rate
  average and the pattern of reserve additions are all consistent
  with a modest tightening," said Dana Johnson of First Chicago
  Corp.
      Johnson, and several other economists, now estimate that
  the Fed funds rate should trade between 6-1/4 and 6-3/8 pct.
      Discount window borrowings in the week to Wednesday were
  935 mln dlrs a day, producing a daily average for the two-week
  statement period of 689 mln dlrs, the highest since the week of
  December 31, 1986, and up from 393 mln dlrs previously.
      Moreover, banks were forced to borrow a huge 5.2 billion
  dlrs from the Fed on Wednesday - the highest daily total this
  year - even though unexpectedly low Treasury balances at the
  Fed that day left banks with over two billion dlrs more in
  reserves than the Fed had anticipated.
      However, economists said it is almost certain that the Fed
  is aiming for much lower discount window borrowings than
  witnessed this week. They pointed to two factors that may have
  forced banks to scramble for reserves at the end of the week.
      First, economists now expect M-1 money supply for the week
  ended April 29 to rise by a staggering 15 to 20 billion dlrs,
  partly reflecting the parking in checking accounts of the
  proceeds from stock market sales and mutual fund redemptions to
  pay annual income taxes.
      As banks' checking-account liabilities rise, so do the
  reserves that they are required to hold on deposit at the Fed.
      Required reserves did indeed rise sharply by 2.5 billion
  dlrs a day in the two weeks ended Wednesday, but economists
  said the Fed may not have believed in the magnitude of the
  projected M-1 surge until late in the week and so started to
  add reserves too late.
      Second, an apparent shortage of Treasury bills apparently
  left Wall Street dealers with too little collateral with which
  to enagage in repurchase agreements with the Fed, economists
  said. Thus, although there were 10.3 billion dlrs of repos
  outstanding on Wednesday night, the Fed may have wanted to add
  even more reserves but was prevented from doing so.
      "It's not at all inconceivable that the Fed didn't add as
  much as they wanted to because of the shortage of collateral,"
  said Ward McCarthy of Merrill Lynch Economics Inc.
      McCarthy estimated that the Fed is now targetting
  discount-window borrowings of about 400 mln dlrs a day,
  equivalent to a Fed funds rate of around 6-3/8 pct.
      After citing the reasons why the Fed probably has not
  tightened credit to the degree suggested by the data,
  economists said the fact that the Fed delayed arranging 
  overnight injections of reserves until the last day of the
  statement period was a good sign of a more restrictive policy.
      Jeffrey Leeds of Chemical Bank had not been convinced that
  the Fed was tightening policy. But after reviewing today's
  figures, he said, "It's fair to say that the Fed may be moving
  toward a slightly less accommodative reserve posture."
      Leeds expects Fed funds to trade between 6-1/4 and 6-3/8
  pct and said the Fed is unlikely to raise the discount rate
  unless the dollar's fall gathers pace.
      Johnson at First Chicago agreed, citing political
  opposition in Washington to a dollar-defense package at a time
  when Congress sees further dollar depreciation as the key to
  reducing the U.S. trade surplus with Japan.
  

