One could argue that the current political situation -- a week after Election Day and it's still not clear who won the presidential election -- makes the

Fed's monetary policy committee more likely to make a market-friendly statement after its meeting tomorrow.

One could also argue that the same situation makes the

Federal Open Market Committee

less

likely to make a market-friendly statement.

Less likely is more likely. The political forces that favor a friendly statement by the FOMC (the fiscal policy implications of a contested election) are slow-moving compared to those that oppose one (the fact that the Fed probably doesn't want to make news at a time like this).

The FOMC, when it convenes for its penultimate meeting of the year, will almost certainly leave the

fed funds rate unchanged at 6.5%, where it has stood since the last of a series of six rate hikes in May, Wall Street forecasters say.

What's not certain is how the committee, in the

statement it will release on adjourning, will characterize the risks facing the economy. Will it say the risk of too-high inflation remains greater than the risk of too-slow growth, implying that it might hike the fed funds rate? Or, in a friendlier statement, will it say that the two risks are in balance? That would be the first step in a process that could eventually lead the Fed to the view that interest rates need to come down.

From a pure economic standpoint, a friendly statement by the Fed would be surprising. The pace of economic growth has slowed, and weakness in the stock market suggests it may slow further. But at the same time, the unemployment rate held steady at a 30-year low of 3.9% in October and oil prices remain high at around $35 a barrel for benchmark crude. After its last meeting on Oct. 3, the FOMC

cited high oil prices as a reason for maintaining a vigilant posture.

But the friendly-statement camp has been growing. According to a

Reuters

poll conducted on Nov. 3, eight of 28

primary dealer firms expect the Fed to cut rates by July. The majority -- 15 firms -- expect no move by the Fed during that period, and five think the Fed will raise rates by midyear.

And in the

fed funds futures market at the

Chicago Board of Trade

, traders have lately been discounting about 1-in-3 odds of an interest-rate cut by the end of the first quarter.

The expectation that the Fed will cut interest rates during the next several months goes cheek by jowl with the expectation that it will stop assessing the risks to the economy as weighted toward too-high inflation. Logically, people assume that the Fed won't cut rates if it's worried about inflation.

While none of this is written in stone, people also assume that the Fed wouldn't cut rates without shifting -- over the course of at least a couple of meetings -- first to a risks-balanced assessment of the economy, then to the assessment that risks are weighted toward too-slow growth.

That's why some people believe that tomorrow's FOMC announcement will take the first of those two steps.

In a sense, the current political situation makes it even easier for the Fed to take that step.

To the extent that a fed funds rate

hike

was possible at some point during the next year, it might have come in response to a more relaxed fiscal policy. In other words, one could imagine a scenario under which the Fed raised rates to balance the stimulating effects of tax cuts, spending increases or both.

Prior to Election Day, the conventional wisdom on Wall Street was that a

Bush

administration would relax fiscal policy more than a

Gore

administration, but that the implications for monetary policy were negative in either case.

Now, however, even though a winner has yet to be declared, economists are saying that the closeness of the vote (and the Republicans' narrow margins in

Congress

) will leave the victor -- regardless of who it is -- in no position to bring about significant change.

"Whatever the outcome,"

Merrill Lynch

bond market strategists wrote in a recent report, "the electorate clearly voted for a continuation of the status quo. The political plans for both parties will be greatly tempered going forward."

"Our early read is that the American people have repudiated the big, bold proposals that framed

both campaigns,"

Morgan Stanley Dean Witter's

economics team agrees. "There simply is no mandate for change."

"With no effective majority in Congress," the firm says, "whoever is ultimately declared the victor in the presidential sweepstakes will lack the bipartisan support needed for major policy initiatives."

But if the Election Day outcome has positive implications for monetary policy over the long term, the fact that a winner has yet to be declared could keep the Fed from making a friendly statement tomorrow.

"At the time of the Oct. 3 FOMC meeting everyone knew that the Fed would do nothing to rock the boat before the presidential election,"

Wrightson Associates

chief economist Lou Crandall wrote in his firm's weekly newsletter. "What nobody knew then is that the Nov. 15 FOMC meeting would really be the last before the election was decided." That makes it unlikely, he says, that the Fed will make any changes tomorrow.

Fed Chairman

Alan Greenspan, Crandall says, "would be delighted if the press reports of the meeting were buried deep on the inside pages of the next day's newspapers."