In a widely expected move Thursday, the European Central Bank raised interest rates for the first time since 2008.
The ECB's key interest rate is now 1.25%, up from 1% previously.
While the change comes as hardly a surprise given recent hints from ECB President Jean-Claude Trichet, it marks the first interest rate hike by a major central bank in a developed economy since the recession.
Central banks around the world have kept interest rates at historic lows since 2008 and 2009, as a way to spur economic activity following the chaos in the credit markets. Low interest rates can stimulate business and consumer spending by making it cheaper to borrow and lend money.
But recently, higher energy and food prices have raised fears that inflation could become unwieldy at a time when economic growth is still sluggish.
Since interest rates are one of the main tools for keeping prices stable, economists have been wondering just how high prices would have to rise before central banks took action.
Several emerging markets have already raised rates, citing inflation pressures. Most notably, China's central bank boosted its key rate earlier this week for the fourth time in the past six months.
However, the Bank of England and Bank of Japan both kept their historically low interest rates unchanged near zero. The Federal Reserve's key interest rate has stood near zero since December 2008.
Since central banks typically don't hike rates as a one-time move, economists speculate that Thursday's change could start a series of gradual rate increases by the ECB over the next few months.
That's a significant move because some think it could put pressure on the Federal Reserve to raise rates later this year.
That said, there are two key differences between the two major central banks. The ECB has merely one job duty -- to keep prices stable. The Fed has two -- to monitor inflation and maximize employment. Plus, the two central banks measure inflation differently.
The ECB's last rate hike was in July 2008, when -- much like now -- oil prices were spiking but economic growth was slow. But in the midst of the Great Recession, the ECB wound up cutting rates several times. The last cut was in May 2009 to a record low of 1%.
