Last weekend, the president of the Bundesbank and council member of the European Central Bank (ECB), Mr Ernest Welteke, said the ECB's half percentage point interest rate cut last week was a once-off event in response to special circumstances.

He was right that we are now experiencing unusual circumstances, but his view that the move was a once-off appears well wide of the mark.

Then again, Mr Welteke was the one who sought to dampen market expectations about lower interest rates ahead of the ECB meeting on August 30th. One wonders if it is just a total waste of time listening to any utterances from individuals like Mr Welteke, who appear more intent on sowing confusion than providing clarity.

For some years now I have had a policy of never going to see central bank leaders speak in public, as one is never likely to pick up anything meaningful to enhance one's ability to make investment decisions.

Central bankers are never likely to give financial market participants any nuggets of information, simply because it is not their job to do so. In fact, it is very much to the contrary.

Having said all of that, Mr Welteke's comments last week were a little strange - even by his own high standards.

When the ECB cut rates on August 30th, there was a "hands on the heart" admission that it had misread the evolving economic situation and particularly the extent of the US slowdown. That was four weeks ago - but how things have since changed then.

If the ECB had previously been worried about the path of the US economy, it now has serious reason to be concerned. Before the US atrocities, the European economy was already struggling under the weight of the sharp deceleration in US activity; today, all of the risks to European growth are most definitely on the downside.

The US economy is in distinct danger of falling over a cliff, as evidenced by the sharp decline in consumer confidence last Tuesday - and even that reading is not likely to capture the full extent of the damage to consumer sentiment. The US economy is now on the brink of moving into negative growth and it would be naive in the extreme to expect Europe to remain in any way immune.

Granted, there is in Europe some current feeling of insulation from the horrific events in the US, and so consumer confidence is unlikely to be damaged to anything like the extent it has been across the Atlantic. This sense of insulation could easily be shattered by further attacks and it is anybody's guess if these will be forthcoming.

However, whether further attacks occur or not, the business environment in Europe will be adversely affected by the travails of the US economy, both in terms of lower world trade and tourism.

Because of some momentum in the first half of the year, the euro-zone economy should be capable of delivering growth of just over 1.5 per cent this year.

We would be doing well to record growth of that magnitude again in 2002, but there are too many uncertainties at this time to make any scientific prognostications for next year.

The immediate task is to engage in damage limitation - and the ECB has a key role to play.

Mr Welteke commented that the ECB would now revert to its task of delivering price stability. This seems strange in a chaotic environment such as the one we have at the moment, but even if the ECB does re-direct its attentions to that goal, the outlook for interest rates is still very good.

Following an initial spike in oil prices after the US attack, the oil markets have settled back calmly. They are happy that OPEC will not cut back supply in line with falling demand and also that the military situation will not pose a threat to global oil supply.

This is very good news for inflation. Indeed, in September, German inflation eased back to 2.1 per cent and French inflation to 2 per cent. Before year's end, inflation in the euro zone will have slipped under the crucial 2 per cent level.

Consequently, the ECB cannot use inflation as an excuse for not cutting interest rates and instead it should focus on the US economy and the dire industrial production situation in Europe.

I would have every confidence that this will indeed be the case. By the time this article appears the ECB will probably have left interest rates unchanged but, by the end of the year, I would be surprised if European rates are not one percentage point below current levels.

Such levels would obviously be artificially low and the cuts should be reversed in the second half of next year but, for the moment, rock-bottom rates are required.

In the midst of all the turmoil, the euro has been somewhat sidelined but, surprisingly, it has failed to gain any ground in the aftermath of the US atrocity.

Structurally, I still do not think much of the currency, but there is a chance in the near-term that we could see some capital flows into European equity markets.

It would appear that following the equity market shake-out over the past couple of weeks, European equities are attractive on a relative valuation basis but it remains to be seen if this will actually lead to a flow of funds out of the US and into Europe.

Despite the US problems, investors are still not convinced that Europe is the place to be.

In such an uncertain world, where the rules of the game are changing on an hourly basis, who knows?

Mr Jim Power is chief investment strategist at Friends First Asset Management.