GWEN IFILL: In recent days and weeks, the financial markets have been even more impossible to predict, swinging from record leaps to sudden drops. While the Dow Jones industrial average was nearly flat today, it's been anything but recently, dropping 10 times in the last 12 days, a decline of 4 percent, or more than 670 points, in three days straight, and swing five days in a row by 100 points or more. Plus, the S&P 500 dropped this week to its lowest point since the fiscal cliff showdown of 2012.
So, what's happening here?
Eswar Prasad, an economist at Cornell University and the Brookings Institution, is here to answer your and our questions.
What's happening here?
ESWAR PRASAD, Cornell University: It's a combination, Gwen, of uncertainty, the Federal Reserve, as always, and fear, uncertainty because the U.S. economy seems to be on the right track. It's generating pretty good growth. The recovery is strengthening.
But the rest of the world is weakening. Everywhere you look around the world, China, Japan, Europe, even countries like Germany that were doing well, are looking very weak. So, the question is whether the U.S. can sustain the global recovery on its own back.
The Federal Reserve looked like it might start having to tighten policy, raising interest rates, because the economy was doing well. But now there are uncertainties about when the Fed might attack, because, again, the U.S. economy is doing well, generating jobs. Also, there is a fair amount of slack left in labor markets.
But now the world environment is weakening, so there's uncertainty there. And, finally, the Ebola epidemic raises the potential that so far, the economic impact has been very limited, but there's real fear it could become something bigger.
GWEN IFILL: Let's separate what's happening globally from what's happening domestically.
First, globally, we're talking, what, $1.5 trillion in global equities wiped out in a week. What kind of weakness is that telling us, is that signaling?
ESWAR PRASAD: It's telling us that really the policy-makers in the rest of the world have no room to move, because what we have in Europe, for instance, is the core economies, like Germany and France and Italy — these are the biggest economies in Europe — these were doing pretty well until recently, although the other (INAUDIBLE) economies were not doing so well.
The one certainly arose from debt crisis. Now even Germany has stalled. So have France and Italy. The central banker, Mario Draghi, has said he will try to act, but there's no room on fiscal policy because there's a huge amount of debt and other reforms to labor and product markets not working well.
So, the reality is that monetary policy may turn out not to be very potent. The same is true in Japan. And in China, growth is slowing. So, around the world, the U.S. remains the one bright spot.
GWEN IFILL: Well, let's talk about the domestic issue, because the one thing we watch, as you heard those numbers, is the ups and the downs and the ups and the downs in Wall Street. And we're loathe to say what drives them.
But is there any — at the very least, let's just look about the fact of the ups and downs, the volatility itself. Is there something underlying all of that?
ESWAR PRASAD: I think it's really concern, a sense of foreboding about the future, because, remember, stock markets reflect not what's happening today, but what might happen in the future.
Right now, the picture in the U.S. actually looks pretty good, because this economy has an unemployment rate under 6 percent. It is generating more than 200,000 non-farm jobs per month. The economy grew in the second quarter at a 4.6 percent annual rate. So the numbers look pretty good.
Falling oil prices are a pretty good thing for the U.S. Inflation is contained. But — and the big but is that the global remains weak, and the U.S. alone cannot sustain itself. Right now, every currency in the world almost, other than the Chinese renminbi, is weakening against the dollar. How long can the dollar hold on against this background?
GWEN IFILL: But the dollar is pretty strong right now. Is that enough to stop investors from fleeing the market, or are they just moving their money around, taking advantage of opportunities?
ESWAR PRASAD: Actually, a lot more money is coming into the U.S. because the U.S. looks like the one country still growing well.
But it will have an effect on exports, it will have an effect jobs. And I think this is what was making investors skittish. On the one hand, they see good news. But they see the prospects of this becoming a recovery that is very difficult for the U.S. to sustain.
GWEN IFILL: Right. If you're an average investor, a small-bore person like you or me maybe, what is safer right now, your job or your portfolio?
ESWAR PRASAD: I think ultimately the U.S. stock market is a pretty good place to invest.
And, remember, the stock market, despite the recent decline, is still slightly ahead of where it was at the end of last — end of 2013. I think employment growth is picking up, but there's a large portion of the population that is still not seeing the benefits either in terms of their portfolios or in terms of job growth.
So, it's still a very, very uncertain recovery at some level.
GWEN IFILL: And that's the nervousness that you're talking about that we see everywhere.
ESWAR PRASAD: That's exactly right.
GWEN IFILL: Eswar Prasad from Brookings Institution, thank you a lot.
ESWAR PRASAD: My pleasure.