That low inflation rate leaves the Fed plenty of latitude to remain on hold, and reinforces our expectation that [a rate increase] is unlikely before the third quarter of 2004.

We believe that the Fed will require both consistent solid hiring and a rise in inflation before it begins to lift rates.

I don't think the market is terribly worried about inflation but there is an expectation that corporate profits might just struggle a little more.

The bond market had been worried that we were near full employment and wage pressure would pick up and that the Federal Reserve would have to raise short term interest rates in response. But now that the all important employment cost index was up just 0.6 percent, the Fed doesn't need to raise short term rates because the economy is slowing down.

Certainly, there was nothing in Mr. Greenspan's testimony to suggest he has seen any strong preliminary data from the April employment report.

The consumer numbers look fairly strong, although at least some of that strength is likely to fade in coming months if housing continues to weaken. The mortgage applications data suggest home prices are already weakening.