The European Central Bank raised its benchmark short-term interest rate by another 50 basis points today. The bank said that the European banking system has strong capital and liquidity positions in spite of problems at Credit Suisse that led that bank to borrow $54 billion from the Swiss National Bank yesterday.
Fighting inflation remains the ECB’s top priority. “Inflation is projected to remain too high for too long,” the ECB said in its statement. “Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, in line with its determination to ensure the timely return of inflation to the 2% medium-term target.”
The move by the ECB doesn’t guarantee that the Federal Reserve will follow suit and raise U.S. interest rates at its March 22 meeting. Fighting inflation has always been seen as a more important priority than goosing economic growth at the European Central Bank. I wouldn’t say the Fed has the same historical priorities.
But the decision by the European Central Bank to raise interest rates in the face of a banking crisis does give the Fed some political and intellectual cover if it makes a similar move on Wednesday.
