A senior Federal Reserve Board official yesterday nudged market expectations towards a possible US interest rate cut, ahead of Senate testimony today by Alan Greenspan, the central bank's chairman.
Mr William McDonough, president of the Federal Reserve Bank of New York and deputy chairman of the Federal Open Markets Committee, which meets next week to consider any change in rates, said: "I believe the balance of risk has shifted from one about inflation to one of concern about adequate growth."
Mr McDonough cautioned that this view, based on anecdotal evidence in the US about investment plans, job reductions and consumer confidence, should not be taken as an indicator of what the FOMC would decide or even how he would vote.
His comments in London were also largely a restatement of comments made two weeks ago by Mr Greenspan, who is to testify to the Senate budget committee about global economic issues.
Mr McDonough said markets had over-reacted by concluding that a statement from the Group of Seven leading industrial countries last week pointed to co-ordinated interest-rate cuts.
G7 members had recently changed rates - up by Canada and down by Japan - for their own reasons.
The hint of lower US interest rates helped to push up European stockmarkets. They closed generally higher after the previous day's strong gains on Wall Street, but last night the US market looked uncertain what direction to take, finally closing down 36.05 at 7,897.20.
