As expected, the European Central Bank was unimpressed by advice to the contrary, and today increased its target policy rate by 25 basis points. From BBC News:
The European Central Bank (ECB) has ignored warnings about an economic slowdown and raised interest rates...
ECB president Jean-Claude Trichet countered these arguments by saying that recent data showed economic growth had strengthened in the eurozone during the second half of this year.
Even with the quarter percentage point increase, Mr Trichet said that interest rates were accommodative and consistent with anchoring inflation expectations.
The BBC article comes complete with this graphic (hat tip, the ever-watchful Shadya Yazback) that makes you want to say the man has a point:
It is important to recognize, of course, that low interest rates are not necessarily synonymous with easy monetary policy, a point I have made in the past. But, Jane Galt points out that "Mr Trichet faces the same problem that other central bankers confront: how to fight inflation driven by high oil prices." In other words, the ECB is to some degree just following the lead of its peer institutions -- whose policies have not exactly been disastrous.
In fact, the Skeptical Speculator documents that the rate hikes at both the Fed and the ECB are occurring in the context of what seem to be pretty solid growth prospects -- and one in which the worst fears about inflation appear to be passing. That may suggest to some that the jump to make policy less accommodative tilts to overkill, but there is probably a good reason that the series of bad inflation statistics driven by the energy-price shocks of late summer are not translating into persistent inflation. Let me suggest that the good reason has something to do with monetary policy.
With that in mind, the most important headline from today's move by the ECB may be this one, from EurActiv:
ECB raises interest rate, underlining its independence