Amid the ongoing financial turmoil, the Federal Reserve kept its nerves yesterday, electing to keep interest rates unchanged. So did stock investors, with the S&P 500 rebounding 1.8 percent.
Economic data gave both the Fed and investors some reason to be hopeful. Consumer prices fell 0.1 percent in August while the National Association of Home Builders/Wells Fargo Housing Market Index gained two points to 18 in September.
It was a similar story in Europe. Inflation in the euro area fell to 3.8 percent in August from 4 percent in July while the ZEW index of German investor confidence rose to minus 41.1 in September from minus 55.5 in August.
The UK, however, saw inflation hit a 16-year high of 4.7 percent in September.
Still, the main concern remains the credit markets. From Bloomberg yesterday:
Credit markets seized up as the collapse of Lehman Brothers Holdings Inc. and downgrades of American International Group Inc. drove the cost of borrowing in dollars overnight to the highest level since 2001.
The London interbank offered rate, or Libor, that financial institutions charge each other for loans soared 3.33 percentage points to 6.44 percent today, according to the British Bankers' Association. The increase was the biggest in its history. The rate was as low as 2.07 percent in June.
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