VIEW: J.P.Morgan note "in this environment we...>

FED: VIEW: J.P.Morgan note "in this environment we see no good reason for the

Fed to "keep its powder dry," but instead now believe it will cut the interest

on excess reserve (IOER) rate to zero at or before the March 18th meeting. The

reason for a maximally aggressive move at the next meeting has its roots in the

optimal control literature, which recommends moving quickly when the effective

lower bound on interest rates looms. This prescription was followed in December,

2008 and we believe the same reasoning applies now... A risk to our view is that

out of caution Fed leadership lowers IOER to 10bp. We believe they may continue

to communicate the funds rate target as a range, 0.0-0.25%, though also feel

they will have no problem if effective fed funds consistently trades near the

very bottom of that range. Recent experience tells us the Fed will move before

next Wednesday if they think they've seen enough. (The blackout period - a

self-imposed restriction - should have no bearing on this decision). However,

one reason the Committee may try to hold out until the scheduled meeting is to

use the extra time to craft other aspects of the policy response."