There is one development that is causing us some near-term concern about the strength of economic growth in the first half of 2004. And that is the recent sharp deceleration in M2 and M3 money supply growth, as shown in Chart 7. We believe this slowdown in money growth is the result of a slowdown in net new mortgage credit growth as a result of the recent backup in mortgage rates. We expect that increasing credit demand from the federal government and businesses (to finance higher inventories) will soon lead to resumption in rapid growth in the monetary aggregates. If this does not occur, however, the risk is that our first-half 2004 GDP forecast is too high.

(Paul Kasriel, Director of Economic Research, Northern Trust)