As the March 16 Federal Open Market Committee meeting approached, Fed officials expressed divided views about the outlook, but the predominant feeling remains that, in the seeming absence of inflation pressures, a modest, uncertain and jobless recovery will continue to need the support of a very easy monetary policy for the foreseeable future. Just-released findings of the Fed's beige book survey, which will be reviewed by the FOMC, largely validate that consensus view.

Despite its best efforts to warn them, financial markets went ape when the Fed Board of Governors announced a hike in the discount rate from 50 to 75 basis points. The action widened the spread between the upper end of the federal funds rate target (25 basis points) and the discount rate from 25 to 50 basis points. Chairman Ben Bernanke had warned a week earlier a "modest" widening of the spread was coming "before long." And he stressed it would have no monetary policy significance. The rate announcement reemphasized that: "Like the closure of a number of extraordinary credit progr

We know why the Fed needs to eventually tighten monetary policy. And, thanks to Chairman Ben Bernanke's testimony Wednesday, we have a little better idea of how it will tighten. But we still have only the vaguest idea of when. In outlining a provisional tightening plan, Bernanke was careful not to signal near-term implementation.

If the Federal Reserve's January senior loan officers survey is any indication, banks may at last be on the verge of opening up their credit spigots. And that has important implications for monetary policy.

Meeting under a cloud of uncertainty about whether Ben Bernanke will win another four-year term as Fed chairman from the U.S. Senate, the Federal Open Market Committee left monetary policy very much on hold at its first meeting of 2010.

There would seem to be little motivation for Federal Reserve policymakers to start moving away from monetary accomodation at next week's Federal Open Market Committee meeting. Nor have they given any indication of a desire to do so.

By the way, Ben Bernanke's current term as chairman runs through the end of next week, so there is no issue of him not being able to chair the FOMC meeting if the Senate hasn't confirmed him for a second term by the time it starts on Tuesday.

There continued to be few indications this week that Fed policymakers are preparing to tighten credit, either at the Jan. 26-27 or at subsequent Federal Open Market Committee meetings in the first half. In all likelihood the FOMC will keep the federal funds rate "exceptionally low ... for an extended period" for the foreseeable future.