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New Data Adds to U.S. Economic Anxieties

The government released several new economic reports and Wall Street endured a roller coaster week of trading -- all of which served to underscore recent uncertainty about the state of the U.S. economy. Two finance reporters discuss the reports and other economic indicators.

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    Last night's comments by Federal Reserve Chairman Ben Bernanke marked the second time this week Fed officials had hinted at a possible interest rate cut to steady the economy. He spoke during a week of troubling economic data and stock market volatility.

    There was more bad news on the housing front: In October, the median price of a new home fell 13 percent from a year ago, to $213,000; and construction activity slumped by a greater than expected amount.

    On economic growth, it was a mixed picture. The nation's third-quarter GDP was reported at a stronger than expected 4.9 percent. But on Thursday, the Bush administration lowered its forecast for economic growth next year, to 2.7 percent from the earlier 3.1 percent.

    All of that conflicting data, and the remarks by Fed officials, led to a wild ride on Wall Street this week. On Monday, the Dow Jones dropped more than 200 points, down 10 percent from its October high. But Tuesday and Wednesday, the index posted its biggest two-day rally in five years, up more than 500 points.

    To make some sense of it all, we turn to two business writers, David Wessel, economics editor of the Wall Street Journal; and Saskia Scholtes, capital markets reporter for the Financial Times.

    Welcome to you both.

    So, David, beginning with you, make sense of this for us. I mean, why all this gyrating data from housing, to oil prices, which are actually a little better, to the economic growth projections and the market? What does it all add up to?

  • DAVID WESSEL, Wall Street Journal:

    Well, it adds up to a lot of uncertainty and confusion, as your report suggested. You know, former Federal Reserve Chairman Alan Greenspan used to say almost any time he was asked that we were living in a period of great uncertainty. I think this is actually a moment for which those words were designed.

    We have, as you pointed out, a week where we thought we were going to hit $100 a barrel in oil. Now oil is below $90. We had a week that began with people expecting the Federal Reserve to hold the line on interest rates, but after Vice Chairman Don Kohn and then Chairman Ben Bernanke spoke, now the markets expect a cut in interest rates.

    And we see the housing problem continue to get worse and the side effects, the freeze-up in credit markets, the reluctance of lenders and big banks to lend even to each other intensified, so I think that's put a very dark cloud over the economic horizon.


    So then, Saskia, why do we have the markets reacting as they did, which is they're up for the week 3 percent?

  • SASKIA SCHOLTES, Financial Times:

    Well, investors have been particularly bipolar in recent months, as the credit crisis has played itself out in the credit markets. Stock market investors have been struggling to make sense of the economic data that they're seeing.

    Now, this week we had some very, very poor housing data, but to a degree investors have become accustomed to seeing very poor housing data, so they were trying to make sense of comments from Federal Reserve Chairman Ben Bernanke and his vice chairman, Donald Kohn, which hinted that an interest rate cut was on the way, which helped stock markets rally.

    They also saw some bright spots in oil prices that were easing and some stability in the U.S. dollar, which showed that the Federal Reserve will have room to cut interest rates if they really need to, to tackle problems in the economy.

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