The Fed's pause in raising interest rates has delighted investors
the year brooding about the risk of an American recession. Torsten Slok of Deutsche Bank, Germany’s biggest lender, says clients around the globe were worried. Financial indicators were flashing red, the stockmarket was weak and yields on low-grade corporate debt had jumped. The Federal Reserve’s decision to raise interest rates in December had been unsurprising, but unwelcome.
Investors have been delighted by the Fed’s pause. But the timing and extent of their change of mood suggests that is not the full story. One possibility is that their previous gloom may have been overblown. “The market collapse in December was driven by the calendar,” says Catherine Mann of Citigroup, a bank, as investors repositioned for tax purposes.
Jesse Edgerton, an economist at JPMorgan Chase, says there are still reasons to be cautious, notably weak business confidence. But more recent data have looked rosier. Sentiment among consumers has rebounded. Jobs growth in March recovered from a hiccup in February . And althoughgrowth of 3.2% in the first quarter hid some softening components, recent trends suggest that they will bounce back.
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