FED DATA SUGGEST U.S. CREDIT POLICY IS ON HOLD Latest Federal Reserve data suggest that the U.S. banking system is flush with reserves going into a period of traditional tightness and that overall monetary policy is on hold, economists said. "There is ample liquidity.... The Fed is not going to shift gears at the present time or for at least another month," said Maria Ramirez of Drexel Burnham Lambert Inc. "Technical and seasonal considerations aside, there is nothing for the (credit) market to get excited about," added Robert di Clemente of Salomon Brothers Inc. Adjusted bank borrowings from the Fed's discount window averaged only 228 mln dlrs a day in the first week of the bank statement period ending next Wednesday, compared with 233 mln and 451 mln in the first weeks of the previous two periods. Another sign of abundant liquidity was the upward revision in banks' net free reserves in the two-week period to March 11 to a daily average of 759 mln dlrs from an estimated 660 mln. Finally, a Fed spokesman told a press briefing that the 14 money center banks were absent from the Fed's discount window for the third week running, with the latest week's borrowing split between the large regional and the smaller banks. While modest open market intervention was apparently enough to defuse any funding pressures in the first week of the latest statement period, economists predicted that the Fed would have to be more aggressive in coming weeks. The Fed injected temporary reserves directly and indirectly on four of the five trading days via system and customer repurchase agreements. "Fed funds will be coming under relatively intense pressure," said Salomon's di Clemente, noting the approaching month- and quarter-end and the round of holidays and tax dates in April. "The Fed is faced with a large seasonal adding requirement," said Ward McCarthy of Merrill Lynch and Co Inc, who expects a permanent bill purchase next week and a coupon purchase in early April. Economists were also heartened by further signs of a deceleration in money supply growth, not only in the largely discredited M-1 gauge but also in the more closely watched M-2 and M-3 aggregates. M-1 grew a mere 500 mln dlrs in the week to March nine, compared with private forecasts of a 2.3 mln dlr rise. Weekly M-2 and M-3 components also hinted at slower overall growth. "The M-1 increase was surprisingly modest and I suspect we are on our way to another moderate set of M-2 and M-3 figures for March," said Salomon's di Clemente. Merrill's McCarthy said they could even come in below the bottom of their respective target ranges. In February, M-2 was 18.2 billion dlrs below its upper limit and M-3 was 20.8 billion beneath. Noting Fed Vice Chairman Johnson's encouraging remarks on inflation today and recent interest rate cuts overseas, some economists suggested this slowing in monetary growth could lend support to calls for further accommodation here. "Our belief is that we could still get a move downwards in rates before anything else," said Salomon's di Clemente, adding that the key swing factor will continue to be the strength of the U.S. economy. Jeffrey Leeds of Chemical Bank agreed that the economy's health would remain the main influence on policy but, contrary to di Clemente, he said that recent signs of faster growth and inflation could lead to higher rates first. Drexel's Ramirez did not commit herself either way, adding that the next major move may have to wait until April 14 when February's U.S. trade data are due for release.