Investors go back into battle with rising interest rates

The pastsvbsvb three months have afforded investors little pause for thought. Since a run on Silicon Valley Bank () in March, markets have had to judge first whether one American lender would collapse (yes), then others (yes, though mercifully few), then whether the contagion would spread overseas (just to Credit Suisse). With the takeover of First Republic, another regional lender, on May 1st, bank failures seemed to have petered out. But by then it was time to worry about whether America’s politicians would throw global markets into chaos by defaulting on their sovereign debt. As this column was published, they at last appeared to have decided not to, provided a deal between President Joe Biden and Kevin McCarthy, the Republican speaker of the House of Representatives, makes it through Congress.All this drama has given markets a holiday of sorts: it offered a break from obsessing about how high interest rates will need to rise to quash inflation. Since the Federal Reserve started hoisting borrowing costs in March last year, little has mattered more to investors. But after ’s fall, the question was not how much the Fed was prepared to do to fight inflation; it was how much it might need to do to stabilise the financial system.