Why the wait?

In response to projected low growth for quite some time the federal reserve has announced they will be keeping interest rates near zero until 2013. Its European counterpart raised its benchmark interest rate last month and there is no sign of them changing their mind. This is odd seeing how the euro zone is in worse shape then America. The ECB should have to worry about high levels of inflation, especially with the German economy coming to a halt. One would expect it to step in to help the ailing economy.

One possible explanation for this is that the inflation the ECB fear is inflation of its own making. While waiting for the European bailout found to be granted the power to buy bonds in the secondary market by the member nations national parliaments, and it is not even certain that it will be, the ECB will have to fill this function. They have already bought Italian and Spanish bonds to keep down those countries borrowing costs and they might have to come to the rescue again. If these bond purchases become too expensive the ECB must pay for them with newly printed money. This will increase the money supply and lead to inflation, much the same way lowering the interest rate would. It is quite possible the ECB fears that both actions taken together would lead to excessive inflation, so they have to put off lowering the interest rate to give itself room to act in the bond market if so needed.