With the Aug. 17 move by the Federal Reserve to lower its discount rate 50 basis points—and its

The Fed is likely to at least shift its inflation-fighting slant to a neutral bias, in which it sees risks to the economy evenly balanced between rising inflation and slower growth, and may chose to adopt an outright bias toward slower growth. And the Fed could lower the policy target rate. But any aggressive future move is hardly baked in the cake with today’s statement, despite the wishful thinking of some observers.

Much, of course, will depend on data between now and the Sept. 18 meeting of its rate-setting arm, the Federal Open Market Committee (FOMC). Indeed, the fact that the Fed avoided referencing a new bias statement in the Aug. 17 release reflects that FOMC members are still unclear as to what the change in the bias will be at the next meeting, let alone the target Fed funds rate, which remained unchanged at 5.25%. Analyzing the Fed’s Statement

The Fed no doubt wants to keep all its options open between now and then—unless a specific insolvency emerges that implies systemic risk to the banking system and an associated immediate policy response. This is a key point for market players who assume that the Aug. 17 Fed statement is a signal that a policy-easing, in the form of a cut to the Fed funds target rate from its current 5.25%, is set for September.

Though the risk of Fed easing remains high as long as the liquidity crisis continues to plague the global financial markets, we will assume no policy change at ensuing Fed meetings until we see an impact on reported economic data that would likely alter the Fed’s estimates for growth. Of course, heightened financial volatility suggests that downside risks to the economy have increased. If the macroeconomic data between now and Sept. 18 track the Fed’s existing in-house projections—and there is a good chance that the figures will—then at least some FOMC members, and maybe all, will be reluctant to change the path of policy.

To be sure, a sudden financial market dislocation in the interim, especially if it threatens the banking system, could easily prompt an interim Fed easing. But until we see the current non-bank financial problems threaten bank performance overall, our assumption will be: no policy change. Parallels to 1998 Fed Easing?

While parallels to the current situation are often drawn to the 1998 Fed easing after the long-term capital management hedge-fund blowup, the associated global financial crisis actually began in mid-1997. The Fed withstood market pressure to ease policy for more than a year, despite widespread belief on Wall Street that the Fed was not correct in its evaluation of the balance of economic and inflation risks.

It took a specific domestic financial crisis that threatened the U.S. banking system for the Fed to act, and that easing was, predictably, followed by a period of heightened economic and inflation growth that grew problematic for the Fed through 1999 and 2000. Though the easing of policy in 1998 may have been a necessary step at the time by then-Chairman Alan Greenspan, this policy-easing proved counterproductive for Fed efforts to steer the economy and inflation, as the Fed itself had suspected through the prior year.

It’s our guess that Fed Chairman Ben Bernanke shares this interpretation of that period and would prefer to avoid that outcome. As such, we think that Bernanke will be resistant to addressing market liquidity concerns with an outright policy-easing until he legitimately perceives significantly greater economic risk, or believes that inflation pressures are subsiding. Short of that, as with his predecessor Greenspan, it will take a specific insolvency event that requires the Fed’s immediate intervention to mitigate systemic risk to the banking system. And such an event, though a distinct risk in the weeks ahead, will be impossible for the markets to predict in advance.

(01-25) 08:24 PST SHANGHAI, China (AP) —

The coldest, snowiest winter in decades has left millions of Chinese without heating and running water, leading the government on Friday to order a suspension of coal exports as the country struggles to meet its power needs.

The Transport Ministry’s emergency notice, posted on its Web site, warned of “severe” consequences for failing to comply with the order, which will stay in effect through the Lunar New Year holiday in February and the annual session of the national legislature in early March.

The notice ordered railways and other transport networks to make hauling coal and food a priority over coming weeks. Ocean shippers should stop loading coal for export and divert shipments “for domestic thermal coal requirements,” if needed.

It was unclear what amount of coal shipments would be affected for China, the world’s biggest coal producer.

The country’s economic planning agency on Wednesday ordered utility companies and coal suppliers to cooperate in fighting power shortages that have forced more than a dozen provinces to ration electricity.

Chronic wintertime shortfalls of coal, used to fuel three-quarters of China’s electricity supply, have been aggravated by unusually heavy snow disrupting transport networks.

The energy shortages are expected to continue, with forecasts predicting prolonged cold weather and more snowfall for many regions of central and southern China.

In some areas, the snow has damaged power grids. Storms felled three power transmission towers Wednesday along a major line of the massive Three Gorges Dam, disrupting a link in central China’s transmission system, the official Xinhua News Agency reported.

Coal shortages have worsened due to friction over prices for coal and electricity.

China’s domestic prices of coal and crude oil rose 14.2 percent and 35 percent year-on-year, respectively, in December, the central bank said in a statement posted on its Web site Friday.

Meanwhile, electricity prices rose only 2.1 percent. Utilities have chafed at caps on electricity rates that prevent them from passing the higher costs for coal on to customers. Coal suppliers are pushing for higher prices.

The Transport Ministry notice said state-owned shipper Cosco Holdings Co. Ltd. was hauling emergency shipments of 760,000 tons of coal to help bridge the gap between faltering supply and soaring demand.

China exported 53 million tons of coal in 2007, down 16 percent from 2006, while imports rose 34 percent to 51 million tons. Net coal exports dropped to just over 2 million tons from 25 million tons in 2006.

Total damage from the prolonged cold temperatures and snow so far is estimated at $864 million, Xinhua reported.

Building the next-generation enterprise—and maybe even the next-generation nation—will preoccupy most of us in 2008. The demand for innovation is soaring in the business community and is just beginning to gain traction in the political sphere. Most of the leading Presidential candidates (BusinessWeek.com, 11/15/07). And nearly all CEOs and top managers who have learned the language of innovation are now seeking the means to make it happen. It took the Quality Movement a generation to change business culture. The Innovation Movement is still in its infancy, but it’s growing fast.

You can see that in the vast changes taking place within the field. Companies are demanding new tools and methods to execute that change within their existing organizations, as well as for the kind of design thinking that transforms cultures. To take advantage of the opportunities, chief innovation officers in big corporations such as Procter & Gamble («www.businessweek.com») and Harley Davidson («www.businessweek.com») are leaving to join consultancies or set up shop for themselves. Consolidation is quickening apace as small innovation consultancies try to combine big-picture thought leadership with specific, on-demand Web applications that manage networks, talent, customers, suppliers, and employees around the world. In 2007, consultancy «investing.businessweek.com» bought into innovation strategy specialists «investing.businessweek.com», led by Larry Keeley, while another large consultancy, «investing.businessweek.com» acquired research firm «investing.businessweek.com», led by Wikinomics co-author Dan Tapscott.

What’s up for 2008? Keep an eye on the business schools. Companies are demanding that their managers be more creative and less obsessed with cost and efficiency. The last revolution within executive education was the introduction of Management Science in the 1950s. Will we see the spread of IM—Innovation Management—in “exec ed”? Privacy, Mobility, and the Next Big Idea

And expect the whole realm of social networking to change in 2008. Just when you “got it” and thought it was all about open, personal, and casual online relationships, social media will morph into another ecosystem—one with lots of gates. Who your friends are is becoming far more important than how many friends you have. We can probably thank our advertising friends for this. The drive to monetize and «investing.businessweek.com» («www.businessweek.com») by using members’ personal information is alienating many people, driving them to more private networks. Stay tuned, and watch Europe and Brazil for future trends. Social networks are beginning to feel a lot like hot nightclubs—with velvet rope barriers.

As for hot products in 2008, prepare for yet more surprises. The triumph of opening up the cell phone will create an array of new applications we can only dream of right now. GPS may seem old hat by next summer. The mobile Facebook is bound to be fascinating. And the e-book may be just an iteration away from taking off. Want to reduce your personal carbon footprint easily? Read books, magazines, and newspapers on an e-book.

And the Big Idea for 2008? Stop competing against your competitors. Your traditional rivals aren’t your biggest worry. Disruptive innovation is hitting corporations from outside their business. Verizon («www.businessweek.com») was forced to open its cell-phone service because Apple («www.businessweek.com») and Google («www.businessweek.com») smacked it hard. Verizon’s new business model will probably generate 10 times the demand for service. You just never know. That’s life, in beta.

For more on 2008 innovation predictions, see BusinessWeek’s

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