This week's set of data were mixed regarding expectations for Fed easing. The housing data didn't suggest that the Fed would need to tighten aggressively, although the industrial production figures were anemic enough. (But keep in mind that the Fed already had an idea that December production was down.) Alan Greenspan likes consumer sentiment surveys and will certainly put some weight in the January drop, which confirmed that the December figure wasn't a fluke.

The Fed's Beige Book, which included data through January 10, 2001, also showed signs of economic weakness in manufacturing and retail sales. Labor markets are becoming somewhat less tight than they were six months ago, and prices are not accelerating either. This generally supports the view that the Fed will ease further. However, Fed officials making the speaking circuit this week were cautiously optimistic about the economic outlook. It is difficult to determine whether they were trying to tell market players that further Fed moves would be incremental, or whether they wanted to ease the extreme recession worries that are evident among consumers and market players alike.

After all is said and done, market players appear to be factoring in a 50 basis point drop in the federal funds rate target at the January 30-31 FOMC meeting. The Fed will have a few more pieces of information at their disposal when they meet. The employment cost index, an important measure of compensation will be reported next week, as will durable goods orders. Also, the Fed gets early information on the NAPM survey and will once again have preliminary data on factory employment and hours.