In the wake of news that the European Central Bank cut interest rates to spur the economy, U.S. stocks opened lower on Thursday morning. While the ECB’s cut was an attempt to temper its growing debt crisis, investors feared that European leaders may not be able to hold off a likely recession.
European Central Bank Drops Interest Rate to Record Low
European leaders have been working toward creating a decisive plan to avoid a long-expected debt crisis that could bring with it a recession and deflation in the euro zone (i.e. countries who use euro as their currency). In an effort to counter these issues, European Central Bank lowered rates a quarter point to a record low of 1 percent.
This announcement came shortly after Standard & Poor’s put the European Union on notice that it could face a possible downgrade following similar action against 15 countries that are a part of the euro zone.
Some say the rates cut will not likely have a positive impact on the first few months of 2012, because Europe is already in a troubled state and leaders have had a difficult time coming to an agreement that could avoid a crisis. However, the European Central Bank is expected to unveil fresh measures that could at least help banks who have been hurt so far.
Wall Street Impacted by European Debt Issues
On Thursday morning, after the European Central Bank announced its rate cuts, Wall Street opened to lower numbers. Despite news that the U.S. jobless claims hit a nine-month low, the Dow Jones industrial average dropped 56 points (0.5 percent), the S&P 500 fell 9 points (0.7 percent) and the Nasdaq Composite moved down 21 points (0.8 percent). However, European markets were unaffected by the rate cuts, remaining stable on Thursday.
Investors are expected to continue watching European leaders as they meet on Thursday to discuss political and economic coordination, along with other measures. The hope is that leaders will be able to restore market confidence and, at the same time, stabilize the euro currency.
