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European Slowdown Drives Roller-Coaster Week In Markets

SCOTT SIMON, HOST:

Global stock markets were in turmoil this week. At one point, the Standard & Poor's 500 Index dropped to a level almost seven and a half percent below its record high posted just a month ago. Panic investors sent the Dow Industrials down 460 points briefly on Wednesday before the market turned around with major indexes up between one and two percent on Friday. NPR's economic correspondent John Ydstie joins us. John, thanks so much for being with us.

JOHN YDSTIE, BYLINE: My pleasure, Scott.

SIMON: Can we say what caused the market sell off?

YDSTIE: Well, a lot of things came together this week that unsettled investors - a big drop in the price of oil, for one, growing concern about a slowdown in Europe, worries about the Fed ending its bond-buying stimulus program at the end of the month. And then it was topped off by this sense of panic, I think, over the Ebola cases in the U.S.

SIMON: And let me ask you about that. We're talking about a handful of cases. Is it a real concrete threat? What's the concern here?

YDSTIE: Well, I don't think it's a threat to the economy unless the situation changes in a very dramatic way. There was some pressure on U.S. Airline stocks when it was discovered that one of the affected nurses had flown with the fever, but, you know, the number of cases outside of West Africa are tiny. And the countries there that are really suffering from the crisis have such small economies that they hardly register globally.

SIMON: I want to ask you about the fall in the price of oil because ordinarily you'd see that as being good - right? - for the economy? People pay less for gasoline, they have more disposable income in other areas.

YDSTIE: Well, generally it is good. But, you know, the answer has become a bit more complicated now. Remember U.S. oil production has shot up dramatically in recent years because of fracking. That's been a bright spot for the economy. And if oil prices were to fall another $10 or so and stayed there, it could actually hurt the U.S. industry. What was more important to investors was that the rapid drop in oil this week, which was down near $80 a barrel before recovering a bit, is that it was one more signal that the global economy is weaker than we thought it was just a couple months ago. And less demand for oil reflects that.

SIMON: How do we estimate how much a global slowdown is going to hurt the U.S. economy?

YDSTIE: Well, it will be a drag, but, you know, despite our complaints about the U.S. underachieving economically, we're actually doing better than any other major economy. The U.S. added nearly a quarter of a million jobs in August. Company profits continue to rise. And, you know, most economists are still predicting a growth rate near three percent for the last half of this year. U.S. stocks have been at record highs. Many analysts argue they were priced for perfection. And some unsettling news brought them closer to reality.

SIMON: So John, at the end of the week what put the brakes on the slide and pumped the market higher?

YDSTIE: Well, a lot of people are crediting the president of the St. Louis Federal Reserve Bank, James Bullard, who suggested on Thursday that given the situation, the Fed might not want to end its bond-buying stimulus program at the end of the month. Now I'd be surprised if it were extended, but it was reassurance to investors that the Fed is still committed to keeping the economy on track.

SIMON: NPR's John Ydstie, thanks very much.

YDSTIE: You're welcome. Transcript provided by NPR, Copyright NPR.