Tags: economy | inflation | prices | rates

CNBC: Economy Faces Plenty of Danger

By    |   Thursday, 16 October 2014 01:27 PM

Signs of U.S. economic strength in recent weeks, such as the stronger-than-expected September jobs report, led to a bit of complacency about the economy.

But now with the S&P 500 having dropped more as much as 9 percent from its Sept. 19 record high, investors are becoming aware of some potential weak spots. CNBC cites five of them.
  • Global slowdown. The eurozone registered zero growth in the second quarter, and Japan's economy shrank at a 7.1 percent annual rate. Federal Reserve officials already have warned that this weakness could spread to our shores. Add unrest in Hong Kong, a Ukraine and Russian war, fighting in the Middle East and even Ebola to the mix and it's clear that the global economy is on shaky ground," CNBC reports.
  • Rising long-term interest rates. While rates have plunged in recent days amid the stock-market turmoil, they could rebound. And long-term rates could jump if investors become fearful about inflation and in increase in the fed funds rate, Mark Zandi, Moody's Analytics' chief economist, tells CNBC.
  • Lower oil prices and overall inflation. Too much of falling prices is a bad thing for an economy. "Gas prices have always been intertwined with inflation, so it's no surprise that we've seen it fall over the last couple of months," CNBC notes.
  • Rising inflation. Prices could potentially move the other way, and that's not helpful either. "The worry here is that the Federal Reserve will have to raise rates faster and higher than planned to curb rising inflation. They then may end up essentially chasing inflation and keep increasing and decreasing the rate," according to CNBC.
  • Falling stock market. If equities continue to plummet, consumers and businesses may lose the confidence to spend. "There's never been a recession without a plummeting market."
Edward Yardeni, president of Yardeni Research, is particularly worried about falling commodity prices.

"The bubble that's bursting now is the commodity super-cycle," he writes in his daily commentary, provided to Moneynews. U.S. crude oil prices hit a two-year low Thursday.

"The drop in oil prices in combination with the drop in industrial commodity prices is spooking investors," he writes on his blog. "These drops suggest that the global economy is heading toward a recession."

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Signs of U.S. economic strength in recent weeks, such as the stronger-than-expected September jobs report, led to a bit of complacency about the economy.
economy, inflation, prices, rates
370
2014-27-16
Thursday, 16 October 2014 01:27 PM
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