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As price of oil soars, stock markets slump

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But newspapers are now reporting that the Dow Jones Industrial Average, a narrower measure of the stock market, is in an official bear market (a market on a downward trajectory). The Dow is down 20 percent from its peak of last October.

The prospect of a bear market could weigh on consumer and business psychology. Economists are concerned this could move the economy from a slowdown into a serious recession.

"We could be looking at a longer, deeper recession," says Fred Dickson, chief market strategist at D.A. Davidson in Lake Oswego, Ore. "Normally, the Federal Reserve would be able to step in, but after they met last Wednesday, a lot of people on Wall Street said, 'They are really hamstrung. There is not much they can do.' "

Last Wednesday, the Federal Reserve left short-term interest rates unchanged. The Fed toughened its language on inflation but did not send a clear sign it would be raising interest rates anytime soon. The Fed would normally raise interest rates to try to curtail inflation.

"What is missing now is the Fed rushing in," Mr. Dickson says. "Now, possibly the only thing that could do something about the rising price of oil is an emergency Fed meeting where they raise rates by half of a percentage point."

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