In his Tuesday testimony to the U.S. Senate Bank Committee, Federal Reserve chairman Alan Greenspan` suggested that the economy had stopped falling and seemed to be leveling off. The markets didn't like what they heard because it was interpreted to mean that interest rates might not be cut as rapidly as had been hoped. Market players were also disappointed by the surprising jump in U.S. wholesale prices, which could ignite inflationary pressures and prevent the Fed from lowering rates as much as is necessary to push up growth rates.

European investors continue to fret over the European Central Bank's refusal to lower interest rates to stave off slowing growth. However, the ECB is rather sanguine about the impact of slower U.S. growth. Only 17 percent of EMU gross domestic product relies on sources outside the region with only three percent originating in the United States. Although the euro region currently is growing faster than the United States, there are disturbing signs of economic softness there. However, the ECB's focus is on inflationary pressures and the harmonized index of consumer prices is currently running above its target of 2 percent. In his remarks at the conclusion of the G-7 meeting, ECB president Wim Duisenberg said that he expected inflation to recede over the next several months leading observers to think that the ECB would lower rates in a couple of months.

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