Worries Over Inflation Send US Stocks Tumbling | Voice of America - English
Stock market analysts say worries over inflation and interest rates are behind the steep sell-offs seen on Wall Street this week. The Dow Jones Industrial Average fell Wednesday to its lowest point in months. Concern is also focusing on what the U.S.
Stocks fell sharply on Wall Street this week after Federal Reserve Chairman Ben Bernanke told an audience of bankers he is uneasy about so-called "core inflation" levels in the economy. Bernanke said, "Core inflation, measured over the past three to six months, has reached a level that, if sustained, would be at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and promotion of maximum long-run growth." Market experts may have become jittery because core inflation figures are believed to provide a clearer indication of an economy's performance than do measurements of overall inflation. Peter Morici, business professor at the University of Maryland, said, ?Core inflation is the consumer price index less changes in energy prices and food prices. Historically, energy prices and food prices, while they drift upward with other prices, show a great deal of month-to-month variation.? He said, ?They are very erratic numbers as you can see looking at the gas pump." Although oil prices are up by about a third in just the past year, economists say the United States has absorbed those increases fairly well so far. As former Fed Chairman Alan Greenspan told Congress this week, that situation cannot go on indefinitely. "Rising prices per se need not have an effect on American economic growth if the rise is gradual and the adjustment process is able to take place,? he said. ?But a shock has got to be absorbed in one form or another and in this particular stage we don't have a backup other than the strategic petroleum reserve and our flexibility; we?ve got to find more ways to deal with this problem." In the meantime, Wall Street worries that the Fed will respond to the latest core inflation data by raising interest rates yet again, which is a concern, says Morici, that is not unfounded. "If inflation is stoking up, the Fed will want to slow the economy. It will raise interest rates,? he said. ?Higher interest rates tend to dampen the stock market ? not long term, but over a period of several months it drags lower, temporarily." How long "temporarily" will last remains to be seen.