The topic of my choice is taken from chapter four. “Interest Rates and Inflation.” The following two articles discussed the impact of inflation and interest rates on the economy.
In London, The Bank of England on Thursday decided to leave its benchmark interest rate unchanged at a record low. Britain’s central bank said it would keep its key interest rate at 0.5 percent. (Anderson). David Tinsley, chief economist for the United Kingdom at BNP Paribas said “The U.K. economy is in a sweet spot with solid growth and falling inflation, so there is no pressure on the Bank of England to take policy action at the moment.”(Anderson) However, Mark J. Carney, the governor of the Bank of England, emphasized higher interest rates were still some way off and that any increase would be gradual.
As Britain’s economic recovery continues and inflation appears to be stable, the bank will continue to hold 375 billion pounds, or $627 billion, in government bonds purchased over the past five years. (Anderson) Anderson, the writer of this article goes on to say that “some economists believe that purchases of government bonds could end up pushing inflation higher because the Bank of England printed large quantities of money. There is concern about the impact that withdrawing the money will have.” The central bank has indicated that it will not sell its stock of government bonds until it increases interest rates, which analysts do not expect to occur until 2015.
In Frankfort, Mario Draghi, the president of the European Central Bank described the euro zone as an “island of stability”. He also stated that Germany and most other euro zone countries were not in danger of falling into a deflationary rut. (Ewing). Mr. Draghi continued on to ensure the people, after the central bank had left its interest rate at 0.25 percent, that even after improvements in the economy the interest