With core inflation outside of the "comfort zone" for several FOMC members it can be safely bet that the Federal Reserve will continue its series of babysteps at the June meeting that has started Wednesday, ending Thursday afternoon. The 17th 25 basis point hike in a row will propel the Fed Funds rate to 5.25%.
The well known environment of accelerating inflation, a fragile housing market, overextended consumers' finances, sluggish markets and an increasingly worried international investors community, fearing a demise of the dollar, provide Chairman Ben Bernanke and the board with a myriad of facts to be discussed.
Fighting on all fronts to pursue a hawkish image Bernanke walks a tightrope between luring international investors via higher rates and the wishes of markets and businesses that fear such a trend will lead to an overshooting, pulling the USA into a recession.
With 25 basis points more the Fed will be just fine: The Euro has stabilized around $1.25 and debtors with property collateral - aka home"owners" - will not get choked at once.
A pause at 5%, as I had expected it until now, is unlikely in the wake of anew surging oil prices. A 50 bp hike is out of the cards because of the recent recovery of the dollar. The Fed will save the heavier ammo for the days it will really need it, e.g. one or more major central bank dumping dollar IOU's.
Markets have discounted the 25bp move too and will move on to the next focal point: The ECB meeting on July 6 where a committed president may send a very clear signal to markets and governments by hiking the Euro overnight rate 50 bp to 3.25%. Jean-Claude Trichet made headlines these days by resisting political pressure to give Eurozone finance ministers a say in the rate-decison process of the ECB, defending his mandate to fight inflation and inflation only.
Both money blocs share a host of problems like swelling trade and budget deficits. While Europe is still at least two blocks away from recovery the US economy is heavily supported by government spending on unproductive areas like wars and espionage efforts on all levels.
After the SWIFT scandal I am waiting to hear the same story about Visa/Mastercard. These records are certainly best suited to find out about a person's living circumstances. This being US domiciled companies the feds will have no problem at all, muscling their way into the world's richest database on individuals.