Corporate credit quality -- a major concern a few months ago -- also appears to be on the mend, according to a report by Moody's Investors Service. Company credit ratings are on the rise, braking a three-year slide and suggesting lower borrowing costs within the next six months. Moody's has raised ratings on 4.2 companies for every 10 it lowered since April 1, compared with 2.9 upgrades for every 10 cuts in the first quarter. The ratio was 1 to 1 in 1998.
Still, Fed officials have made it clear they fear the economy remains vulnerable to slower growth this year. While inflation is creeping higher and unnerving the bond market, the US central bank worries that trillions of dollars worth of wealth erased by the stock market's losses pose even bigger risks.
Recent economic news -- including the quarter of a million jobs lost in April -- "still argues for the FOMC to finish the run of medicine," says Neal Soss, chief economist at Credit Suisse First Boston Inc in New York.
Japan, of course, remains in perpetual monetary-stimulus mode. Short-term rates are at zero and the Bank of Japan has gone beyond that, pumping up the nation's money supply. Until politicians get serious about fixing Japan's troubled banking system and companies restructure, the BOJ has little choice but to keep printing yen, says Richard Jerram, chief economist at ING Barings Securities (Japan) Ltd in Tokyo.
Other major central banks are cutting too. The Bank of Canada has been lowering borrowing costs this year amid signs of softening domestic growth and mounting weakness in its biggest trading partners. The Bank of Canada is expected to move again later this month. The Bank of England also has trimmed borrowing costs three times this year.
With central bankers again taking a we-are-the-world approach to policy making, the risks of a global recession are waning.
RSS