Rumors of Fed Rate Hikes Dead Wrong, says Novak

The dollar's rally last week was its biggest in years, spurred by tough talk from Bernanke and a potential crack in Jean-Claude Trichet's resolve, as the PIGS see their economies buckle, and plead with the technocrats in Frankfurt to reconsider their posture.

But the dollar is getting smoked this morning, due in part to weak manufacturing activity in New York state, and the fallout from the G-8 meeting. And oil is ramping despite the production increases from the Saudi's. Some market participants are also pointing squarely to this piece in the Washington Post:

Speculation that the Federal Reserve is about to begin inflation-fighting interest rate increases appears to be dead wrong. Fed Chairman Ben S. Bernanke is worried more about runaway oil prices contracting the global economy than inflating it through a wage-cost spiral. According to sources close to him, America's leading central banker has no plans for a raise.

That conflicts with the recent announcement that the European Central Bank would raise interest rates to combat what it considers to be a tide of inflation presaged by rising food and oil prices. Because the Europeans themselves are divided about what to do, the promised rate hike next month is described as modest -- no more than a quarter of a percentage point.

Nevertheless, the prospect of the world's two most influential central banks going in opposite directions reflects an unusual difference in outlook on the global economy by Bernanke and Jean-Claude Trichet, president of the European Central Bank. Washington Post

Will Trichet soften his posture? And if he does, will the Bundesbank technocrats at the ECB poison him (like that Pope)?

Are you confused about the inconsistencies that seem to come out each day?

Yeah, that makes two of us. Robert Novak is throwing the latest monkey wrench into this worldwide soap opera. The central bankers do not seem to be cooperating, but they sure know how to fiddle, and Rome is burning.

The Fed’s Rates Dilemma
Washington Post

Oil Nears $140 a Barrel; Weak Dollar Cited
AP

Dollar Falls as New York Factories Contract, G-8 Stops Short
Bloomberg
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