WASHINGTON — A growing fear of economic deflation helped take the air out of the stock market Wednesday, and another white-knuckle final hour on Wall Street pushed the Dow Jones industrials under 8,000 to their lowest close during the financial meltdown.
October consumer prices took the biggest monthly drop in the six decades records have been kept — good for shoppers but a danger sign for the economy because falling prices can make a mild recession spiral into something worse.
The drop illustrated once again how quickly the economic danger can shift in tumultuous times like these. The inflation fears that gripped the nation just a few months ago now seem like a distant memory.
“Consumer price inflation has suddenly screeched into reverse,” said Brian Bethune, economist at IHS Global Insight. “The inflation threat has disappeared from the radar screen.”
Worried about the economic data, a gloomy outlook from the Federal Reserve and the fate of the Big Three automakers, investors yanked money out of the stock market. The Dow drifted lower for most of the day, then plummeted in a tumultuous final hour of trading.
Documents from the Fed’s most recent closed-door deliberations on interest rate policy showed a worry about “significant weakness” in the economy and a worsening job market.
After those deliberations, on Oct. 29, the Fed lowered the benchmark interest rate to 1 percent, a level seen once before in the past half-century. Many economists think the Fed will go even lower when it meets again Dec. 16.
At the same time, the documents showed the Fed had doubts about whether more cuts would help much.
