Oil Rally
May Stall Rebound By US Economy, Stocks
07 May 2008
| 02:20 PM ET
The continued surge in
oil prices is starting to cut into economic growth--and with it, the slowly
recovering stock market.
So
far, the economy and stocks have taken the unprecedented rise in energy costs
in stride. But that's beginning to change.
Higher oil costs already
are curbing some discretionary spending by consumers, which could slow the
economic recovery. The stock market, in turn, could see its recent rally stall
on worries about oil's impact on inflation and economic growth. That's
largely what happened in the market on Wednesday.
And
if stocks fall back, investors are likely to put more money in oil and other
commodities, pushing prices up even more.
Main Street May Rain on Wall Street Recovery Parade
Wall Street seems to have concluded that the worst of the credit crisis
is over and investors are looking to better economic times ahead, but
Main Street is sending the opposite signal.
While banks have raised cash by the billions to shore up
balance sheets that were battered by bad bets on mortgages and other loans, the
front-line staff in charge of doling out that money to consumers and companies
remain downbeat, suggesting that the economy may stay in the doldrums for some
time.
The U.S. Federal Reserve's
quarterly survey of senior loan officers, released this week, showed widespread
tightening of credit. The percentage of banks reporting tougher lending
standards was close to, or above, historical highs for nearly all loan
categories in the survey.
Banks clamped down on loans to
companies large and small, to prime and subprime mortgage holders, and on
credit cards, home equity lines and other consumer credit. Most banks blamed a
less favorable economic outlook for the tightening terms rather than their own
bruised balance sheets.
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