Merrill Lynch Looks For Fed Risk Shift Toward Weakness

ByJohn S. McClenahen When Chairman Alan Greenspan and his colleagues on Federal Open Market Committee (FOMC) put out their policy statement on Jan. 29 after two days of Washington, D.C., meetings, expect to see a policy shift, advises Merrill Lynch & Co., New York. The FOMC is likely to abandon its "neutral" stance on the U.S. economy and signal that it's worried about continued weakness in the world's largest economy. "The economy has deteriorated noticeably since the Fed eased [the monetary supply] on Nov. 6 [2002] and switched to a neutral risk assessment," Merrill Lynch notes. "The 'soft patch' that the FOMC described has proved to be more prolonged and severe than the Fed had hoped." A risk shift toward weakness this week could result in the FOMC lowering the influential federal funds rate at its next scheduled meeting on March 18. But that's very "iffy," and Merrill Lynch, for example, has not built it into its economic forecast.