Stock markets around the world remained volatile as worries about a global recession continued to overshadow relatively good news on US inflation.
Inflation at the consumer level was flat in September, the government reported Thursday, temporarily halting Wall Street's slide. But stocks soon turned sharply lower and continued to swing wildly.
Stocks in Europe and Asia fell, while credit markets remained tight and oil prices declined to a 14-month low.
"Looking at inflation right now is like looking in the rearview mirror while ignoring the train wreck dead ahead," Chris Rupkey, Bank of Tokyo-Mitsubishi economist, told CNBC.com.
"Even Fed policymakers are saying the economy appears to be in a recession," he adds. "And that is why the stock market has fallen more than 40% from the highs last year. It is discounting a recession if not outright depression."
After more than a month of unprecedented government intervention, it's unclear what policymakers can do next to calm markets.
Treasury Secretary Henry Paulson said Thursday that he's not proud of the mistakes leading up to the crisis, but insisted the administration is pursuing the right course to end it.
Federal Reserve Chairman Ben Bernanke has left the door open for another rate cut, saying Wednesday that inflation pressures are moderating. But the Fed's emergency half point cut on Oct. 8, which brought its target short-term rates to 1.5 percent, did little to affect the actual rates banks charge borrowers and each other, which remain dramatically higher.
The availability of short-term commercial paper loans—which businesses use to buy raw material and pay workers—fell for the fifth straight week, according to the Federal Reserve.
"The market is just very worried about a severe international economic downturn," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney.
The U.S. economy is suffering from a litany of woes: falling wages, weak consumer spending, tight credit, slumping home prices and rising job losses.
While the number of new peoplesigning up for unemployment benefits last week dropped, new claims still totaled 461,000 -- a figure associated with deep troubles in employment conditions.
Citigroup reported its fourth straight quarterly loss Thursday. The bank said it had cut 11,000 jobs in the third quarter, bringing its job cuts for the year to 23,000.
Coming economic data on housing, consumer spending, manufacturing and employment are "apt to show either stagnation at depressed levels or substantial further deterioration," Goldman Sachs economist Seamus Smyth said in a report.
The economy might not recover until 2010, Donald Kohn, vice chairman of the Federal Reserve, said Wednesday evening.
The plunge in stocks put the nation's economic anxiety front-and-center as the two major presidential candidates, Sens. Barack Obama and John McCain, squared off in their final debate Wednesday night in Hempstead, N.Y.
Earlier this week, after governments around the world announced plans to use trillions of dollars to prop up banks, including a U.S. plan to buy about $250 billion in bank stocks, the market appeared to be turning around—or at least calming down.
Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke have expressed confidence that the government's radical efforts to stabilize the financial system and induce banks to lend again will eventually help the economy.
But Bernanke warned that even if financial markets calm, the nation will not snap back to economic health quickly.
"Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away," Bernanke told the Economic Club of New York on Wednesday.
President Bush plans to speak on the financial crisis early Friday—before U.S. markets open— at the U.S. Chamber of Commerce headquarters across from the White House.
Officials said the speech wasn't intended to put forward new policy actions, but rather would give the nation a more detailed explanation of what the government is doing to combat the crisis.
Leaders of the world's top economic powers, the Group of Eight, said they would meet "in the near future" for a global summit to tackle the financial crisis. The group comprises the United States, Japan, Germany, France, Britain, Italy, Canada and Russia.
British Prime Minister Gordon Brown said the meeting could be held next month. He said the discussions should include not only the world's richest nations but also major emerging economies such as China and India.
The current financial crisis began more than a year ago in the United States when lax lending standards on certain home mortgages came home to roost. Foreclosures skyrocketed, mortgage securities soured and financial companies racked up huge losses.
—AP contributed to this report.
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