Yesterday's post suggested that UK rates will rise soon. It would be unusual for the MPC to tighten policy when the Federal Reserve is still loosening, via its QE2 securities purchases. Will the Fed's stance also shift over coming months?

The first chart shows US official interest rates together with a leading indicator of Fed policy based on trends in unemployment and core inflation and a measure of supply bottlenecks from the ISM manufacturing survey. The indicator is constructed so that a positive reading signals a need for tighter policy and vice versa. (The Fed has stated a target for the Fed funds rate since 1995; the discount rate is used as the official measure for earlier years.)

The indicator turned negative in June 2007, three months before the first Fed rate cut and six months before the onset of the recession. It continued to weaken during 2008 and early 2009, reaching a trough in May before embarking on a sustained recovery. Since mid 2010 the indicator has been hovering just below zero.

Of the components, the ISM bottlenecks measure is already positive. Labour market leading indicators, meanwhile, suggest that the unemployment component will move above zero during the first half of 2011. Core inflation, therefore, may need to fall further to keep the indicator in negative territory. Core CPI trends, however, may deteriorate, with goods inflation boosted by pass-through of cost increases and the important housing rents component firming in response to a falling rental vacancy rate.

So the Fed leading indicator could turn positive as early as this spring, suggesting an increase in official rates in the late summer.

The second chart shows how the Fed is progressing with its plan, announced in November, to buy a net $600 billion of securities by mid-2011. While the purchase programme is on track, the impact on bank reserves and the monetary base has been smaller than expected, implying partial sterilisation. This could indicate that the Fed is already concerned about overstimulating the economy; there is an outside chance that it will end QE2 early in the event of strong data over the next couple of months.

The February MPC vote is on a knife-edge, according to an "MPC-ometer" model designed to predict policy decisions based on incoming economic and financial information. The model suggests a 4-4-1 split (i.e. four votes to hike offset by Adam Posen's call for more QE), leaving the hawks just short of majority.

The MPC-ometer foresaw support for long-standing hawk Andrew Sentance at the January meeting – see previous post. Spencer Dale and Paul Tucker are plausible additions to the Sentance-Weale axis this month.

Most economists assume that a rate hike is still distant following news of a 0.5% fall in GDP in the fourth quarter and a defiantly-dovish speech by Bank of England Governor Mervyn King. The median forecast is for a quarter-point rise in the fourth quarter of 2011, according to the monthly Reuters poll.

The MPC is likely to discount the snow-affected headline GDP result but place weight on the ONS assessment of a "flattish" underlying performance – still notably weaker than expected. The MPC-ometer, however, judges that this negative surprise will be more than offset by a further surge in consumer and business price expectations in January as well as solid survey activity indicators and strong financial markets.

Analysts may have been bamboozled by Mr King's speech, which is not necessarily reflective of the balance of opinion on the Committee.

If the model forecast is correct, the hawkish camp will be well-positioned for a rematch in March, possibly armed with further data suggesting a strong GDP bounce-back in the first quarter.

UK money supply figures for December are a mixed bag, suggesting moderate economic expansion during the first half of 2011.

Encouragingly, corporate liquidity has improved further, with non-financial corporations' sterling and foreign currency deposits rising at a 4.3% annualised rate in the three months to December. Echoing business surveys, strength was focused on the manufacturing sector, with a stunning 22.1% rise, while deposits of companies in the services sector slipped by 1.4%.

With companies continuing to repay debt, the liquidity ratio (i.e. bank deposits divided by bank borrowing) reached its highest level since the second quarter of 2007. Excluding the overleveraged commercial property sector, the ratio is at a new high in data extending back to 1998 – see chart. The liquidity ratio leads business investment, which rose by 8.9% in the year to the third quarter.

Broad money rose by 3.0% annualised in the three months to December while annual growth moved up to 2.3%. As previously argued, a 2-3% rate of increase may be more than sufficient to support trend economic expansion and 2% inflation because the velocity of circulation is rising in response to negative real interest rates. Some MPC members seem to be placing less weight on low broad money expansion as a factor restraining inflation, with the January minutes stating that "money and credit growth could remain weaker than nominal spending growth for some while".

There are two concerns. First, narrow money remains sluggish – M1, on the ECB's definition (i.e. currency plus overnight deposits), rose by only 1.3% in the 12 months to December, unchanged from November but down from 5.0% in December 2009. A further fall would be alarming. Secondly, high inflation is acting as a drag on economic prospects by weakening real-terms monetary trends. This, however, argues for the MPC to press ahead with policy tightening to prevent the current inflation overshoot from becoming entrenched.

In further evidence that US companies have shifted into expansionary mode, online job postings rose sharply in January, having moved sideways during the second half of 2010, according to the Conference Board. Vacancies lead employment, suggesting stronger payrolls growth ahead – see chart. Confidence in this prospect will increase if the pick-up in postings is confirmed by the Monster employment survey, released on Thursday.