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The global economy faces "considerable challenges" in the shape of a slowing US economy, financial market turmoil and higher inflation, US Treasury Secretary Henry Paulson said Saturday. Paulson, addressing the spring meeting of the International Monetary and Financial Committee, said global growth had been favorable in past years but circumstances had now changed in the fallout from the US home loan crisis. "2008 will be a more difficult year, with headwinds coming from adjustments in the US economy, financial market stress, higher commodity prices, and higher than desirable inflation," Paulson said, according to the text of his address. "Downside risks will vary ... but no economy is entirely immune from global forces." Paulson said that after several years of "what, in retrospect, was unsustainable home price appreciation, the US economy is undergoing a significant housing correction." The fallout puts all the risks on the downside and the US authorities have responded with a series of measures, including increased spending, to cushion the blow, he said. "It took time to build up recent excesses and it will take time to work through the consequences. We must expect more bumps in the road," he said, citing the correction in the markets and reassessment of risk since August.

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General Electric, which is widely viewed as a bellwether for the economy because of its diverse operations, stunned Wall Street on Friday by reporting sharply disappointing results for the first quarter and creating widespread concern about the outlook for other companies. The inability of G.E. to sidestep current market forces underscores just how broadly the credit crisis is spreading through the economy. The company, which has businesses as varied as finance and jet engines, has normally been able to manage weakness in any given sector, making its surprise all the more worrisome. The weakening outlook for company profits and a poor consumer confidence report pushed the Dow Jones industrial average down by 256 points, about 2 percent, and the other major indexes had similar declines. G.E.’s stock fell 13 percent, its biggest one-day loss in two decades.

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Disappointing first-quarter earnings from General Electric Co (GE.N: Quote, Profile, Research) and a drop in U.S. consumer confidence to its lowest in more than a quarter century in early April provided the latest signs the U.S. economy may be in a recession. General Electric, the second-largest U.S. company by market capitalization, on Friday posted an unexpected 6 percent drop in first-quarter profit. Profit at its financial services arm, which accounted for more than a third of GE's total revenue in the quarter, fell about 20 percent -- the biggest shock yet to American industry from the credit crisis. Weakness in health care and industrial divisions also weighed on results. "It's confirmation that we're in a recession," Jerome Heppelmann, portfolio manager at Liberty Ridge Capital in Berwyn, Pennsylvania, said of GE's results.

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American Airlines, the biggest operator of Boeing Co. MD-80 jets, said it had ``no choice'' in grounding almost half its fleet after the planes again failed to meet a U.S. safety order. That decision forced the cancellation of about 1,550 flights over two days, stranded 171,000 passengers and helped send AMR's stock to the biggest drop in a month. American, the world's largest carrier, will scrub 900 more today as it continues another round of inspections. American acted in response to spot checks by the Federal Aviation Administration that found the carrier hadn't secured some wiring in accordance with an FAA directive. Compensating stranded passengers and working on the jets will create ``very significant'' costs, American said, without elaborating.

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The Senate on Thursday passed a bipartisan package of tax breaks and other steps designed to help businesses and homeowners weather the housing crisis. The measure passed by an impressive 84-12 vote, but even supporters of it acknowledge it's tilted too much in favor of businesses like homebuilders and does little to help borrowers at risk of losing their homes. The plan combines large tax breaks for homebuilders and a $7,000 tax credit for people who buy foreclosed properties, as well as $4 billion in grants for communities to buy and fix up abandoned homes. Despite the impressive vote, the bill will be significantly redrawn by critics in the House. The White House opposes the plan but has not issued an explicit veto threat. It says parts of the legislation would make the problem worse by depressing some home values and the measure inappropriately uses taxpayer money to bail out lenders saddled with foreclosed houses.

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Yahoo on Wednesday moved another chess piece in its bid to fend off a hostile takeover by Microsoft, announcing it will outsource advertising space to Google as part of a short-term deal that could lead to a bigger partnership. As part of a two-week trial, Google-generated ads will appear next to some U.S. search results on Yahoo (YHOO, Fortune 500). The experiment raises the possibility that Google could run Yahoo's search advertising service. Yahoo's move - clearly an attempt to show its unwanted suitor that it has other options - was quickly met with resistance. Microsoft general counsel Brad Smith suggested that a formal Yahoo-Google alliance would be anticompetitive, and a powerful Congressman warned that he would be watching the two-week test "closely."

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Wall Street extended its losses Wednesday as a rise in oil prices and a profit warning from United Parcel Service Inc. raised investors’ anxiety about the well-being of the economy. Technology names were among the steepest decliners, with the tech-dominated Nasdaq composite index falling more than 1 percent. The surge in oil prices weighed on transportation stocks and contributed to a pessimistic tone in the market. Crude prices jumped following a government report showing U.S. inventories fell by more than expected last week. The rise hurt shares of airline and trucking companies, which have already struggled with high fuel costs.

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Crude oil, gasoline and heating oil surged to records after a government report showed that U.S. supplies dropped. Crude oil inventories fell 3.15 million barrels to 316 million last week, the Energy Department said. A 2.3-million- barrel gain was forecast, according to a Bloomberg News survey. Metals futures also rose as the dollar fell against the euro, and gasoline pump prices reached a record average $3.343 a gallon. ``This reaction to the DOE numbers suggests that the supply and demand fundamentals are still important,'' said Adam Sieminski, Deutsche Bank's chief energy economist in Washington. ``It's not just the speculators that are driving prices higher.''

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Former Federal Reserve Chairman Alan Greenspan said on Tuesday the U.S. economy was in recession, and said it would be appropriate to tap public funds to resolve the mortgage-related crisis that has helped pull the economy under. In an interview with CNBC television in which he defended his chairmanship of the U.S. central bank against charges that his policy missteps had laid the groundwork for the current crisis, Greenspan said Fed decisions on his watch were rationally constructed based on evidence at the time. "I have no regrets on any of the Federal Reserve policies that we initiated back then because I think they were very professionally done," Greenspan said.

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Worries about a deep recession drove Fed policymakers to slash a key interest rate last month, minutes of their closed-door meeting show. Even as the Fed battled in almost unprecedented fashion to stem a widening credit and housing slump, some Fed members fretted over the possibility of "prolonged and severe" business downturn. It was in that environment that they vote—with some dissent—to cut this important interest rate by three-quarters of a percentage point to 2.25 percent. That action capped the most aggressive Fed intervention in a quarter-century. Some Fed policymakers thought that such a widening recession could not be ruled out given the further restriction of credit availability and "ongoing weakness in the housing market," according to the meeting minutes that were made public Tuesday. Two Fed's members—Charles Plosser, president of the Federal Reserve Bank of Philadelphia, and Richard Fisher, president of the Federal Reserve Bank of Dallas—opposed such a big rate reduction, however. They favored a smaller cut because of concerns about a potential inflation flare-up. It was a crack in the mostly unified front that the fed often has projected to the public.