Last week we confirmed that rates had climbed dramatically in early June. Nothing has happened to push them back down. On a nationwide average, they are about 6.5% on a 30 year fixed, still far below the 10 year average.

Initial jobless claims were released last week, showing the number of Americans filing first-time claims for unemployment benefits fell last week, signaling an improvement in the labor market. Continuing jobless claims fell to 3.6 million, the lowest since April, but still well above the year ago level of 2.52 million. Adding to more inflation fears was a report from the Agricultural Department saying the price of cereals, baked goods, sweets and poultry will rise this year by more than expected a month ago because of accelerating costs for grain and fuel.

Job Losses – Since peaking on 10-31-07, the number of workers on US payrolls has declined by 608,000 over the last 7 months through 5/31/2008. During the last official US recession, the number of workers peaked on 3/31/01 and over the subsequent 7 months fell by 872,000.

Caught between inflationary pressures and a weakening economy, the Federal Reserve’s policy makers voted on Wednesday to deal primarily with the weakening economy by keeping interest rates at their present level.

The Fed did not hike rates today. There is a possibility of a hike in August but it is not likely. The Fed is in a tough spot - the economy stinks, housing is struggling, confidence is low and costs are rising. You need only look at your last receipt from the grocery store or gas station to see how quickly things have changed. And a walk through your local shopping Mall tells another story of individuals who are less able to spend. That is the Fed's problem...the smart move is clearly to hike. Inflation is rapidly eating away the value of money. And while food price increases hurt, oil is the real story. So why has oil risen so wildly? The answer...The Fed. The evidence is too clear to ignore.

Let's take a look at where we were before the first Fed cut on September 18th. The Fed Funds Rate was at 5.25%, Oil was at $73 per barrel and the Euro was $1.35. Not great, but not bad. Fearing a recession, the Fed did the right thing to stimulate the economy - they cut. But cutting rates in the US makes higher rates in Europe appear much more attractive. So the Dollar began to tank against the Euro and just got worse as the Fed continued to cut. Now it takes $1.56 to equal one Euro. That is a huge swing. And here is where it gets interesting...Oil is priced in Dollars, so as Dollars decline, Oil price per barrel must rise. Oil has gone from $73 a barrel before the Fed cuts to yesterday's close of $137 a barrel.

And the European Central Bank President, Jean - Claude Trichet, has been talking about a rate hike in Europe, even though they are headed for a recession. Remember there is a big difference between the US Fed and the ECB - the US has a dual mandate, fight inflation and promote growth. The ECB just fights inflation. And just the talk of a hike from the ECB has sent oil even higher.

Again, oil prices are surging mainly because of the Dollar weakness and the Fed cuts. Think about it - has demand for oil suddenly skyrocketed in the past 8 or 9 months? Sure it has gone up, but oil had already doubled in price when it was at $70. And higher prices for oil hurts everything. Sure at the pump and for heating, which allows less to spend, but travel, manufacturing, shipping...the list goes on and on.

Now that the Fed has met and released its Policy Statement, the market will move its focus to next week’s job data that will be released by the Labor Department on July 3^rd.