Grim Fed Announcement and High Oil Prices Cause Stocks to Fall
May 26, 2008 · Print This Article
The Federal Reserve bank’s pessimistic announcement to the public today, combined with the unprecedentedly high price of oil, drove down all the major stock indexes on Wall Street. Trade slowed down as investors worried about rising inflation, rising unemployment, and increasing costs.
Wednesday morning, the price of oil went up to $134 per barrel, breaking the $130 per barrel barrier. Soon after, the Federal Reserve bank released the record of its meeting from April. The minutes of the meeting revealed that the Fed had dark predictions for the US economy. The Fed opined that economic growth would decrease, while unemployment would increase during 2008. At the same time, the Fed stated that it was unlikely to decrease US interest rates because of worries about inflation.
As a result of these unfortunate developments, the Dow Jones Industrial Average decreased by 227.49 points on Wednesday. In other words, the Dow decreased by 1.77%. This comes on top of Tuesday’s loss of 200 points, for a total loss of approximately 427 points over the course of two days, the biggest two-day loss since February of this year.
Meanwhile, the Standard & Poor’s 500 index decreased by 22.69 points—that’s a loss of 1.61%. The S&P 500 index has also suffered a telling change in its composition. In the wake of the credit crisis, the financial sector is no longer the biggest on the S&P 500 index, having been overtaken by the information technology sector.
The Nasdaq also suffered a loss: the Nasdaq index went down by 1.77%, or 43.99 points.
At the same time, Americans’ scrabble for less risky investments during this trying period led to a rise in the price of US government bonds. Likewise, the price of gold has gone up, even as the price of the dollar has gone down relative to other currencies on the foreign exchange market.
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