SCOTT SIMON, host:
Strap yourselves in, we're going to talk about this week's Wall Street rollercoaster ride - oil prices are up, interest rates are down, the economy is growing, but the subprime mortgage market isn't recovering.
With us to talk about all the peaks and valleys is our friend from the business world, Joe Nocera. He joins us from our studios in New York.
Joe, thanks for being with us.
Mr. JOE NOCERA (Columnist, The New York Times): Thanks for having me, Scott. You summed that up pretty well, I must say.
SIMON: Oh. Well then, thanks for being with us, Joe Nocera.
(Soundbite of laughter)
Mr. NOCERA: Exactly. It's confusing out there.
SIMON: Well, the price of oil is close to $200 a barrel.
Mr. NOCERA: That's right.
SIMON: And the Fed cut interest rates.
Mr. NOCERA: That's also right.
SIMON: Does that spell recession, though?
Mr. NOCERA: There is a tremendous amount of confusion. It's really hard to figure out where the economy is going, where the market's going. And And the Fed, you know, lowered interest rates, which normally helps the stock market, and it usually signals that they're not worried about inflation, and yet then they put out a statement on Wednesday after they did so that basically said we kind of are worried about inflation and this may be the last - they didn't say quite like this, but the general meaning was this may be the last rate drop for a while. So it seems as though the Fed itself is as confused as the rest of us.
SIMON: High price of oil is now coupled with a two-year low in inventories, but the economy grew by almost 4 percent in the third quarter. Is it because it's that resilient?
Mr. NOCERA: That, you know, that's sort of a hundred-thousand-dollar question, Scott. The price of oil cannot keep going up without having any, eventually, a dampening effect on the economy. It just has to happen. And yet, mysteriously, the economy did in fact grow by 4 percent and there was payroll data that came out on Friday that was also very encouraging.
So we're in one of these moments where you can't quite figure out where it's going to go. It could go either way. People keep spending, economy keeps humming along, and a lot of it really has to do with whether or not the housing market rebounds. And that's a lot of the concern that's on people's minds.
SIMON: And that's all tied up with the losses on the subprime mortgage market.
Mr. NOCERA: Exactly. And it's having a really profound Wall Street effect and it's having a profound Main Street effect. You know, it's harder to buy a house. More importantly, it's harder to sell a house because prices have dropped. And then on Wall Street, I mean, we saw the effect this week, which was enormous, you know, with Merrill Lynch announcing…
Mr. NOCERA: …basically an $8.5-billion write-down directly attributed to its problems in the subprime mortgage market and the CEO of Merrill Lynch, Stan O'Neal, losing his job.
SIMON: The Fed also injected $41 billion into the U.S. financial system this week putting more liquidity. Why was that necessary?
Mr. NOCERA: One of the things the Fed is worried about is a freezing of credit. And so pumping liquidity into the system is an effort to keep, you know, borrowers and lenders at work. If you really want to break down the American economy, the way you do it is you stop credit because that's what this economy hums on - runs on. And so the Fed is really busy trying to balance between, you know, worrying about inflation, which would basically imply higher interest rates and worrying about the state of the market, which would imply lower interest rates. They are really betwixt in between. There aren't - Bernanke is in a very tough spot right now.
SIMON: What are the choices he has in front of him?
Mr. NOCERA: He doesn't have a lot of choices. It is my personal belief that he do not actually want to lower interest rates this time because I think they really are worried about inflation. But I think he fell back into a corner because the Fed had more or less signaled earlier that they would do that and the markets had already started to build that end to its thinking process. And if he hadn't raised interest rates, I think the markets would have dropped out awful lot more than they did drop.
And as it was, Scott, I mean, the day after he lowered interest rates, which is supposed to give a turbo charge to the market, the stock market was down 300-plus points. So the market is not exactly reacting to what's supposed to be good news from the Fed.
SIMON: Joe, thanks very much.
Mr. NOCERA: Thanks a lot, Scott.
SIMON: New York Times columnist Joe Nocera.
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