The Federal Reserve Board maintained a neutral bias its rate decision today to avoid spooking the markets according to Dr. Sherry Cooper, chief economist at BMO Nesbitt Burns.

Cooper says she thought there might be a bias shift in recognition of weaker-than-expected industrial production, trade, confidence and employment data in recent weeks. But, “clearly the Fed is sensitive to market reaction. In the wake of the recent nervousness in all financial markets, a shift from a neutral bias might well have heightened concerns and exacerbated the situation,” she says. “Moreover, it is likely that fiscal stimulus will do the heavy lifting this year as short-term interest rates have already hit 41-year lows.”

Cooper also notes that she sees mixed signals in the economic data, validating the Fed’s neutral stance. “The Fed is likely correct in remaining on the sidelines. Our view is that the Fed is finished easing for this cycle. Resolution of the Iraqi situation, declining oil prices, a weaker dollar, and massive cost cutting by Corporate America will spell renewed economic strength and stronger corporate earnings later this year. That will be good for stocks and bad for government bonds.”

Cooper also sees war as inevitable. “Judging from the President’s speech and conversations with Washington officials, a war with Iraq is all but irreversible. Military action is likely to begin in the next few weeks, with or without the support of the UN Security Council,” she says.