The Bank of England announced a “temporary” bond buying measure in response to the recent rises in British sovereign debt yields, making it the first central bank to abandon the inflation fight.
This repricing has become more significant in the past day – and it is particularly affecting long-dated UK government debt. Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.
Cheap money is the crack cocaine of financial markets, and the Bank of England just demonstrated how powerful an addiction it is.
Interest rate hikes to corral inflation are problematic, but outright money printing via “Quantitative Easing” is never a good idea.
"Cheap money is the crack cocaine of financial markets"
I agree completely. In a free market, interest rates would naturally be somewhat above the rate of inflation. When central banks depress them artificially to a rate less than inflation, they deny the time-value of money, thereby forcing money into speculative assets, which creates bubbles.