Financial markets are adjusting with equanimity to the onset of the interest rate tightening cycle. The well-crafted communications strategy of the U.S. Federal Reserve Board prepared markets fully for the first measured rise in U.S. policy rates in June 2004. The backdrop of resurgent and broad-based economic growth, rising corporate earnings, and stronger corporate balance sheets have helped support equity and corporate bond prices, notwithstanding the prospect of further interest rate increases. Limited inflationary pressure to date has moderated expectations for the pace and degree of tightening in the United States and Europe. Market participants are now focused on the sustainability of the recovery, and its impact on interest rates and asset valuations.