European Interest Rate Hike May Foretell Shift in Fed Policy

Stocks traded with all the precision of a baseball skipping into the Boston Red Sox outfield over the past week, which is to say it was pretty sloppy. The major equity averages settled near the flat line, but it was a mess getting there after the European Central Bank raised rates for the first time since mid-2008, there was a 7.1 magnitude aftershock in Japan, and Texas Instruments Incorporated (NYSE: TXN ) bought a rival chip maker at incredible premium. By far the most important economic news of the past week was the European Central Bank's decision to raise interest rates for the first time in two years. The central bank is run by a Frenchman, Jean-Claude Trichet, but it has aspirations to be considered in the same league as the old Bundesbank, which ran monetary policy in a brilliant, sober fashion for Germany in that country's postwar heyday. One of the primary aims of the Bundesbank was to avoid the sort of runaway hyperinflation that ravaged the Weimar Republic in the 1920s and ultimately led to the emergence of the Third Reich. It's the aim of every central bank to prevent the debasement of the currency, of course, but Europeans tend to take this a lot more seriously than Americans. To find out how rate hikes by the world's central banks will affect stocks, read on...