DAVID GREENE, HOST:
Well, after a strong start, U.S. stocks seem to be back on a rollercoaster this morning. This follows a dramatic drop in the markets on Thursday. That decline of just over a thousand points officially made this recent slump a correction. That's the financial term for when the stock market falls at least 10 percent from a recent high. Now, we should keep things in perspective here. These are not historically bad days for the market, which had been on quite a hot streak. But this has been enough to spook foreign markets and also raise some questions about the health of the U.S. economy more broadly. I want to bring in NPR economics correspondent John Ydstie.
Hi there, John.
JOHN YDSTIE, BYLINE: Hi, David.
GREENE: So more volatility today, it sounds like - so far this morning.
YDSTIE: Oh, yeah. Yeah. The market opened substantially higher, so I think there was a little sigh of relief. But then it dropped steeply down into negative territory, and we had a 600-point swing - so more volatility today. Analysts say it's going to be that way for a time. Right now, it looks like we're in the green just a little bit - or, that is just in the positive area. But we'll see what the day brings. We have corrected...
GREENE: Really up and down.
YDSTIE: Yeah, up and down again today. We have corrected down 10 percent overall for this past week, including Friday. But some analysts are saying we could reach that bottom again and maybe even go a little bit lower before things stabilize.
GREENE: What's causing all of this?
YDSTIE: Well, several things. Stocks have been overvalued. I'm sure you've talked about that lots on MORNING EDITION...
GREENE: Yeah.
YDSTIE: ...Over the last year or so. Too much exuberance - enthusiasm for the tax cuts contributed. That helped drive stocks up 7 percent in January, a really steep rise, all of which has now been given back. And then interest rates are moving higher. We were near zero for years. That helped make stocks the only place you could get a decent return on your investment. Now investors are concerned that rates may move higher faster.
A week ago, we got a strong wage growth number in the jobs report. That suggested the Fed might raise rates even faster, and that actually triggered this sell-off. And you know, David, the market is worried a little bit about the Fed. We have a new chair, Jerome Powell. He says he will follow Janet Yellen's gradual approach to raising rates. But there are several open seats on the Fed's policymaking board. And...
GREENE: And open seats means uncertainty, which markets don't always like (laughter).
YDSTIE: Exactly. We don't know who's going to fill those seats and whether they'll want to raise rates faster.
And then there's this other thing. People who were involved in this investment scheme - betting on low volatility in the market - they're still selling off stock to cover their losses. At least we think they are - it's not a very transparent process. And that along with highly automated trading and stocks may be fueling these deep dives.
GREENE: God, there's just a whole list of factors coming together to do this.
YDSTIE: A whole bunch of things going on.
GREENE: What about what's happening in Washington? I mean, we had the president sign this spending bill into law this morning. And the feeling in Washington, I know, is with some sense of relief that maybe - maybe - the string of shutdown debates is over. Could that settle things down on the market?
YDSTIE: I don't think so. In fact, you know, what we're seeing in this deal is several hundred billion dollars added to budget deficits in addition to those being created by the tax cut - about a trillion dollars. So the market doesn't like that. It's not going to affect prices significantly now, but it will weigh on the market because big deficits can hurt the economy.
GREENE: Well, speaking of the economy - I mean, you're saying could hurt the economy in, you know, later years - what about right this moment? I mean, does the volatility on Wall Street suggest that this economy is not as strong as we thought it was?
YDSTIE: No. The - Wall Street is not the economy. And the economy is very strong. In fact, maybe it's a little bit stronger than had been anticipated. And that's part of the reason people are concerned that rates are going to go up faster. But we've got a strong economy. What's happening is really a stock market issue.
GREENE: OK. That's NPR economics correspondent John Ydstie talking us through what seems like another volatile day on Wall Street.
John, we'll be following what happens with you. Thanks.
YDSTIE: All right, David. Thanks. Transcript provided by NPR, Copyright NPR.
