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The interest rate itself is determined by the demand for and supply of money and securities.
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As can be seen in the accompanying charts, there has also been a sharp drop in expected interest rates, itself a sign of an expectation that the economy will not soon recover.
I find it somewhat hypocritical of Alan Greenspan and the Federal Reserve to use the threat of inflation to justify rate increases when the effect of higher interest rates is itself inflationary ("Federal Reserve Gives a Nudge to 2 Key Rates," front page, Feb. 3).
This debate is of direct consequence to when interest rates rise – itself of massive importance to the stability of the recovery – not to mention the outcome of the next election.
In its latest policy statement the Federal Reserve removed a promise to be "patient" before raising interest rates, giving itself more flexibility to lift rates for the first time since 2006.
Lowering interest rates by itself doesn't solve the problem.
The statement, issued along with the bank's monthly interest rate announcement, was itself a departure from previous practice and showed that Mr. Carney, who became governor on Monday, is already making his mark on procedures.
But, because the interest rate that the bank itself pays to finance its operations fluctuates, that exposes it to potential risk.
It logically follows that raising interest rates is in itself inflationary.
So the central banks face a further challenge: how to impose negative interest rates on cash itself.
The Federal Reserve voted today to leave interest rates unchanged, giving itself more time to determine whether the series of rate increases it has imposed the last year are slowing the economy sufficiently to avoid an upturn in inflation.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com