The warnings from politicians and the unions were dire: Raise interest rates and it will hurt the economy and jobs. European Central Bank President Jean-Claude Trichet paid them no heed Thursday as the bank raised its benchmark rate a quarter of a percentage point.
The move made it clear that Trichet thinks inflation is the real threat, not slower growth. What he left hazy is where rates go next.
The bank's governing council raised its benchmark interest rate from 4% to 4.25%. Trichet said the meteoric rise of food and energy costs across the 15 countries that use the euro was disconcerting enough to prompt a unanimous vote in favor of the move.
It was the first move upward since June 2007, putting rates at a nearly seven-year high. It was also the first time the bank had adjusted the rate in either direction since August despite the global credit crisis. Higher rates fight inflation but can slow growth too.
