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To: bobby beara who wrote (10789)	4/27/1998 3:58:00 PM
From: Alex	Read Replies (2) \| Respond to of 116763

Monday April 27, 3:07 pm Eastern Time TALKING POINT--Fed bias poor indicator of Fed move By Isabelle Clary NEW YORK, April 27 (Reuters) - Federal Open Market Committee (FOMC) policy directives known as ''biases'' are poor gauges of federal funds rate moves and even worse indicators of their timing, according to Fed records. Neither of the Fed's major policy shifts of 1994 -- the first tightening in five years -- or of 1995 -- the first easing in three years -- were preceded by a policy directive signaling that move. In total, only four of the 11 federal funds rate changes implemented by the Fed since the preemptive anti-inflation cycle kicked off in February 1994 were ushered in by a bias. The Fed declined to introduce a tightening bias during the six months that preceded the 25-basis-point funds rate hike on February 4, 1994. There was no easing bias either before any of the three funds rate cuts that occurred between July 6, 1995 and January 30, 1996. While a tightening bias preceded the Fed's last rate change -- the isolated 25-point funds rate hike of March 25, 1997 -- a long eight-month stretch went by between the introduction of the bias on July 3, 1996 and the actual rate move. ''The bias is in no way binding in terms of future policy,'' one senior Fed staffer told Reuters. ''The bias is to signal what the majority of FOMC members think is the most likely direction of the next rate change, certainly not its timing.'' Traditionally seen as signaling the real possibility of an interest rate change in between FOMC meetings, the bias has become a mere indication of FOMC future policy sentiment. The FOMC itself spelled out at its August 19, 1997 meeting the looser relationship between policy bias and policy moves. ''While they (FOMC members) did not attach a high probability to the prospect (of) ... a tightening move during the inter-meeting period, they continued to view the next policy move as more likely to be in the direction of some firming than toward easing,'' the minutes of that meeting said, referring to the FOMC's tightening bias. This wording about the bias accompanied the announcement that the FOMC would from now on target the funds rate rather than reserve conditions, as it did in the past. ''The bias reflects the prevailing sentiment among the FOMC majority at the time,'' the source added, stressing that ''people should not read too much into this.'' The Fed removed a tightening bias in place since May 1997 at its December 16 meeting, citing concern over the potentially negative impact of the Asian crisis. But the U.S. economy has remained robust despite the drag on its exports, prompting reports that a tightening bias was reinstated in March. Such concern weighed heavily on both U.S. stocks and Treasury issues on Monday. -- POSSIBLE LOST DATA -- \000 Worth noting, the only inter-meeting move since 1991 -- the 25-point hike on April 18, 1994 -- was not preceded by a bias. The FOMC also had, at times, a bias that it did not act upon, like the tightening bias in place in May and July 1993. It was removed but never reintroduced before the Fed actually began raising rates in February 1994.