It seems like the last meeting was only yesterday. But here we are again, on the eve of another meeting of the Federal Open Market Committee. There appears to be little doubt in the minds of economists that the Fed will decide to leave its target rate for Fed Funds unchanged. I concur with that opinion.

Back on July 1, the day before the previous meeting, I wrote, "For the time being, the economic environment is one of moderate economic expansion coupled with a modest, controlled, level of inflation. What's more there is little sign of higher inflation in the forseeable future."

Since that time, the inflation picture is little changed; but, some definite symptoms of economic slowdown are in evidence. For one, higher long-term interest rates have put the brakes on the upsurge in the housing sector. For another, the manufacturing sector is showing signs of a slowdown. Just last week, manufacturing and trade sales -- a component of the Composite Index of Coincident Economic Indicators -- declined for the first time in three months. What's more, the latest report on personal income and outlays shows that consumers are spending less and saving more.

Thus, there should be little concern that the Fed will act tomorrow to tighten conditions in the credit market. In light of the slowdown in the economy since the last FOMC meeting, it seems more likely that the Fed would decide to lower rates than to raise them. But, given the upsurge in the GDP in the second quarter, I believe that Chairman Greenspan would want to see more evidence before coming to that decision.

Pat Lafferty (MF Merlin)

Transmitted: 8/19/96