6 september 2009, interest rates going north

Monday 7th September 2009

Trichet (or rather a former colleague I can guess at from the style) penned an important article in thursday's financial times, which basically answered the question posed by the economist a few weeks ago about which will be the first central bank to raise interest rates. Trichet’s rather clear answer was “us”. As the anchoring of inflation expectations is the ecb’s strongest weapon against inflation, this is an important theme. Given that the most obvious course of action to deal with the massive debt most of the western world now finds itself lumbered with will be to inflate it away, there will be a point soon when action will need to follow words if that course is to be avoided. One of the fed’s favourite economists, carl walsh said pretty much the same thing a few weeks ago. With its best-in-class independence, the ecb is by some way best equipped to deal with the pressures that will accompany doling out short-term pain for long-term gain. I suspect that will be a strong divergence there with the bank of england. Meanwhile, I’d really like to go and see the new michael moore’s new film, capitalism: a love story...