Slow growth and rising prices worry Wall Street

first_img AD Quality Auto 360p 720p 1080p Top articles1/5READ MOREWhicker: Clemson demonstrates that it’s tough to knock out the champIn a speech Sunday night, former Fed Chairman Alan Greenspan added to the market’s ill humor by indicating that “stagflation” – when inflation accelerates and the economy weakens – is a growing possibility, given last week’s data showing spiking consumer prices. With inflation on the rise, the Fed, which has reduced the target federal funds rate three times since the summer, might feel less inclined to lower rates again. Higher inflation is also a problem for consumers, especially during the holiday season. With only a week left until Christmas, sales data have suggested tepid spending by Americans, who are struggling with higher food and energy costs and tumbling home values. “The consumer is two-thirds of our economy. The consumer holds the key to whether we have a recession in 2008,” said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons Inc. in St. Louis. Peter Cardillo, chief market economist at Avalon Partners Inc., said the market is volatile ahead of Friday’s “quadruple witching,” a quarterly occurrence during which contracts expire for stock index futures, stock index options, stock options and single stock futures. The expirations magnified Wall Street’s mood, which has been downbeat because of uncertainty in the market about the effectiveness of the Fed’s actions and the overall economy. “It’s going to be a bumpy ride from here till the end of the year,” Cardillo said. NEW YORK – Wall Street extended last week’s losses Monday as investors remained concerned about flagging growth and rising prices, and were skeptical that a special Federal Reserve credit auction will be a solution. The Dow Jones industrial average fell nearly 175 points and all the major indexes lost at least 1 percent. The Fed offered $20 billion in 28-day credit through an auction Monday. The central bank will not release the results until Wednesday, but the aim of the auction is to encourage commercial banks to borrow from the Fed. That, in turn, is designed to boost banks’ lending to businesses and consumers and keep the economy humming. Last week, the Fed disappointed investors when it cut interest rates by only a quarter of a percentage point, which was less than some analysts expected. Wall Street is pleased that policymakers say they will keep trying to lift market confidence, which has dwindled since home foreclosures started soaring, but the market is so far unconvinced that the auction will be enough. Wall Street started 2007 soaring due to strong merger-and-acquisition activity but found little consolation in deal-making Monday.160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set!last_img read more