Global Stocks Drop Day After Fed's Rate Pledge

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Global stocks dropped after opening trading Wednesday on worries about a weakening U.S. economy and the financial health of European banks.

The Dow gave back much of its gain from Tuesday, down by 429 points by mid- morning after the Federal Reserve pledged to keep its key interest rate at nearly zero into 2013.

But it wasn't just U.S. stocks that were in trouble -- all of Europe's major banks were facing massive selling amid fears over their exposure to government debt.

Tuesday's Short-Lived Rebound

The Dow Jones industrial average had surged by more than 200 points after the Fed's announcement Tuesday.  By the end of the day it finished with a 429-point gain.

"The Fed is an institution that still has a lot of credibility. They read the statement at first and said, 'Well, they didn't do anything.' And then they looked at it a little more and said, 'Maybe they threw us a bone," said Kenneth Rogoff, an economist at Harvard University.

The central bank's unprecedented move is designed to keep interest rates low on consumer items like adjustable-rate mortgages, car loans and credit cards.

However, the announcement underscores the dire straits of the U.S. economy. The Fed says the country's economic recovery is considerably slower than expected. As proof, it cited a lack of robust hiring, slowing consumer spending, and a faltering housing market.

Clearly Main Street is still struggling through deep waters.

"Everybody's scared. The market is up and down. Nobody knows what's going to happen. The only thing that's doing well this year was the market and if this goes, the rest of the economy will probably falter as well," one person told a reporter.

Still, some analysts say Wall Street doesn't sense a second recession is on the way, even though Americans may feel like it's happening.

"When you have subpar economic growth it can feel like a recession," explained Art Hogan, managing director and head of product strategy for Lazard Capital Markets.

The combination of positive signs from both Wall Street and the Fed may have stopped the bleeding for now - but market observers say the economy still has a very tough road ahead.

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Heather Sells

Heather Sells

CBN News Reporter

Heather Sells enjoys reporting on a variety of issues for CBN News. Some of her recent stories have focused on religious liberties, technology, AIDS, overseas missions, domestic trafficking, and politics.  Follow Heather on Twitter @SellsHeather and "like" her at Facebook.com/HeatherSellsCBNNews.