U.S. stock market indexes fell to five-year lows Wednesday, as the central bank cut predictions for economic growth and the big U.S. automakers continued to plead for billions of dollars in aid to avoid bankruptcy.
Federal Reserve officials say the economy probably will shrink for the last six months of this year and the beginning of 2009. And they say the jobless rate could hit 7.1 percent or higher.
The bank cut interest rates in late October and signaled it may lower interest rates again to stimulate the battered U.S. economy.
In response to the gloomy Fed report, the Dow Jones, S&P and NASDAQ stock indicators all lost more than five percent. The Dow settled below 8,000 for the first time since 2003.
Shares of Chrysler, General Motors and Ford all plummeted Wednesday as industry executives went to Capitol Hill for a second day to argue their case for a $25 billion bailout.
Joining them was the head of the United Auto Workers union, Ron Gettelfinger, who said the car companies are in "dire" condition, and that their collapse could cost three million jobs.
Other economic reports released Wednesday say prices fell a record amount in the United States last month, while U.S. home building dropped to a record low.
The Labor Department said U.S. consumer prices were down one percent for the month - the sharpest drop in 61 years. Prices fell as energy costs dropped and merchants cut prices on cars and clothes.
Declining prices raise concerns that deflation could further slow the economy, as consumers put off purchases hoping they will get a better deal in the future.
A separate report from the Commerce Department shows housing starts falling by a sharp 4.5 percent in October. That slashes the number of new homes under construction to the lowest level (791,000) since economists began keeping such records in 1959. Falling property values and tight lending discouraged prospective home buyers.
Some information for this report was provided by AFP, AP, Bloomberg and Reuters.