I'll See Your Quarter, and I'll Raise You A Half

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Mr. Trichet, today:

"'The Governing Council [of the ECB] is monitoring very closely all developments. It is in a state of heightened alertness. We considered that it is not excluded that, after having carefully examined the situation, we could decide to move our rates for a small amount in our next meeting in order to secure the solid anchoring of inflation expectations, taking into account the situation. I don't say it is certain. I say it is possible. It is our strong determination to secure a firm anchoring of medium- and long-term inflation expectations in line with price stability.

Mr. Lacker, today:

"As time has gone on, that risk of a sharper contraction has definitely receded in my mind. At the same time ... overall inflation has come in uncomfortably high. And so I think we are going to have some challenges going forward if overall inflation doesn't moderate in the months ahead. If there is a risk of inflation expectations rising ``significantly, we need to shade policy higher than we otherwise would.''

Mr. Plosser, today:

" The only credible way to limit expectations of future lending is to incur the risk of short-run disruptions to financial markets by disappointing expectations and by not lending as freely as before."

By the sounds of the above, both sides are prepared to pull the rate hike trigger. It may be a question of who does so first and what the catalyst to such a move will be. For the Fed, the time between tomorrow's non-farm payroll and unemployment numbers and its next meeting on the 24th could be testing time for its verbal dollar support. After that, it is down to calling the Treasury. Oh, wait, it acts alone.

Stay tuned for Friday's sure to be exciting developments.

Happy Trading.