Inflation Fears Hit The Stock Market
It was another roller coaster ride for Wall Street as the stock market has become increasingly volatile the last few weeks. Stocks fell sharply earlier this week after the Federal Reserve disappointed many investors by lowering interest rates by only 25 basis points.
The day after it rebounded slightly on news that the Fed would join forces with four other central banks in a coordinated effort to combat the global credit crunch. However, stocks tumbled once again Friday as government inflation numbers rose higher than what many economists were predicting.
The Producer Price Index(PPI) rose 3.2 percent in November, it’s highest increase in 34 years, showing signs that high oil prices may finally be working its way through the economy. The Consumer Price Index(CPI) rose 0.8 percent, a 0.5 percent jump form the previous month.
With inflation fears hitting the market, investors are concerned that future rate cuts may not be forthcoming. These numbers underscore the Fed’s statements about inflation risks when it cut interest rates by only a quarter percent on Tuesday.
The housing slump and mortgage meltdown have yet to impact the broader economy adversely as growth as well as employment has stayed fairly steady the last few months. In years past, times of high inflation were accompanied by rising unemployment so investors will be watching carefully for this in upcoming months.
