Why are central bank interest rates in the US higher than in Europe?

Question

The Fed’s interest rate is over 4%, while it is 3% for the Bank of England and even lower for the ECB. Why is that?

In: 6

Answer 1

The primary task of most central banks is to maintain inflation at a low but positive rate – usually 2% or so. Interest rates are the primary mechanism they use to achieve this. Given that different countries that share the same currency often have different levels of inflation, let alone ones that don’t, there isn’t really much reason to think that interest rates ever would be the same.