Richard Quest

When it comes to central banks and inflation, most think of playing it safe, not playing roulette.

The past week has seen two very different approaches. One in the form of Steady Eddie at Britain's Bank of England who at the mere whiff of currency and earnings inflation has put up rates for the seventh time since the last general election.

The other is Gambler Greenspan, at the US Fed who in the face of similar evidence has elected to play hard ball with inflation and leave short term rates alone.

It is hard to imagine Mr Greenspan as a Las Vegas high roller - but these days he is starting to look like he is betting the house on his hunches.

Mr Greenspan is a man who will never use one word if a complicated sentence will do. With the notable exception of his 'irrational exuberance' speech in 1996, his public pronouncements have been obscure bordering on opaque.

Be-that-as-it-may, by all that's tradition US rates probably should have gone up some time ago. First quarter growth of 4.8% coupled with an unemployment rate of 4.2% all looks jolly uncomfortable.

It is only a combination of dwindling exports along with the rising dollar that seems to be doing the necessary: slowing US Inc. down while keeping inflation tame at 1.4%. Traditionalists would argue that's enough playing the tables.

A tale of two banks

Take last week, and the reports on earnings and unemployment. The same trends on both sides of the Atlantic produced different results. The Bank of England partially justified its rate rise because it was worried that recent deflationary movements could be negated by higher imports and labour costs.

In the US the Fed seems to have gone the other way. Allowing the currency to appreciate has kept inflation under control while dampening down export growth.

But being the world's leading central bank has certain international obligations not given to lesser mortals in London. Any rise in US rates would have an effect far from US shores. It would make a bad situation worse for Asian economies, as foreign capital moved homes.

The gambler would then be betting not only his own chips, but those of others as well. While the parochial US consumer might not care much about Asia, the Fed is far more worried that the spill-over would be dramatic - and untested.

All of which goes against the true grain of Alan Greenspan. He is the man who has made an art of 'inflationary expectations' - something more nebulous than inflationary forecasts. He is now playing the gamble of his professional life. Alan Greenspan has never been thought of as 'risk taker supreme'. That is until now.

Out on the street

Truth be told, Wall Street doesn't really mind which way the market goes. Up is better than down - you make more money, but the canny can still do well regardless. What they hate is a market going nowhere. Which explains the angst as the Dow refuses to grow. Months of trading sideways have left US bonds looking very attractive even at lower levels (as well as safer should things turn nasty).

The bio-tech sector received a huge fillip with the Monsanto-AHP merger announcements. Bruised and battered with recent failures now the sector is set to become alight with further consolidation of smaller bio-techs into traditional drug giants.

Next week, a look at the tech sector - profits made, profits lost - is it time to get out?