Barry Ritholtz argues that the US Reserve Bank is the only one that makes interest rate movements based on core inflation. This is an inflation reading without all the inflationary bits in it and can be traced back to President Carter's time. Inflationary stuff like energy costs and food are removed from it. Ritholtz considers this indefensible. As to the recent increase in interest rates in Australia:

Unlike the spendthrifts here in the US, other Central Bankers around the world understand what the true definition of inflation is. Consider the following: The Reserve Bank of Australia hiked rates to an 11 year high (due to inflation concerns). And, Miller Tabak's Peter Boockvaar points out that, over the past month, Iceland, Romania and Mexico have raised interest. While the RBA move was expected, the Australian $ rallied to a 23 1/2 yr high vs the US$.

The US bailing out of speculation by lowering interest rates and making money cheap was known as the Greenspan put, it is now getting known as the Bernanke put too. Ritholtz believes that this policy goes against the Reserve Bank's mandate for price stability. Consequently the US Reserve is directly contributing to inflation and a weak US dollar.
Cam Riley: South Sea Republic. Freedom, liberty, equity and an Australian Republic.

Comments
  • Vee . # . 3/3
    Isn't it also what Hawke/Keating did for the Recession We Had to Have? And then we recovered so quickly that we had to hike the Interest Rates so high.

    Isn't the Australian Reserve Bank just avoiding that again whereas the US version is more likely to cause a recession?
    • cam . # . 2/3
      Vee, Yes, it seems the Australian Reserve bank is acting on a policy of price stabilisation rather than market stabilisation. The US Reserve with the Greenspan/Bernanke put is exacerbating risk by offering cheap bailouts through interest rates:

      Reasonable people can disagree whether some of Greenspan's cuts were justified. But in my view, the record shows that he took things too far again and again. He overreacted to short-term market dislocations. He never really let speculators get punished. And he never let economic recession work its cleansing power.

      Moreover, Greenspan would swoop in with a fresh flood of easy money no matter what kind of data he had on inflation, employment, growth, or virtually everything else.

      IANAE but the Australian Reserve appears to have the better policy.
      'Sworn to no party, and of no sect am I.' Frederick Vosper's republican motto.