The dollar is a little lower in early NY trade as the FOMC starts their two day meeting.  The expectation is for no change in rates.  However, expect more concern about inflation and increases in inflationary expectations. 

Over the last week, the market has seen airlines add surcharges to travelers expense.  Dow Chemical's CEO was just on CNBC talking of surcharges on transportation and higher prices.  This is something which more and more companies are looking to do.  The price of oil remains in the upper end of $130 and this is despite the Saudi's announcement of an increase in production, China's 15% price increase which should slow demand, reports that the US consumption was down and the bearish rhetoric from the Oil Producer and Consumers meeting this weekend (I guess there is nothing to stop the move).  

Those who short oil can't "get no satisfaction".  So they are forced to buy back each and every time.  Real end users of oil, are also forced to continue their hedging buy pressure as they simply cannot afford higher prices down the road when profit margins continue to be squeezed.  When speculators and hedgers are the same way the result is more buyers and less selllers.  Something has to give, but it just is not happening at the moment.    

As inflation concerns increase, so too do the concerns regarding economic growth.  The meeting will correspond with the US economic series which are most likely to show continued weakness.  Any home data is likely to remain weak as high supply and higher mortgage rates keep headwinds strong.  In additon, with the housing and inflation problems, consumer confidence cannot possibly show much improvement either 

In the chart above, it shows how the 1 year ARM and the 30 year mortgage are up sharply over the last few weeks.  People who have their adjustable float refixes coming up, are getting no relief. If they want to refinance into fixed rates, they run into another brick wall as those rates are up sharply as well.  One has to think that foreclosures will therefore continue as people simply give up and have no where to turn. 

New buyers who want to take advantage of lower home prices, also find higher fixed rates and stricter loan standards.  

With higher oil prices at the pump, higher mortgage rates, and a weaker employment picture, the affordability for new home purchasers is just hard to see unless prices of homes come down even more.  As a result, the home data will be hard pressed to show any improvements in the near term.  It is way off in the future. 

It is a difficult time for the Fed.  As a result, expect no change in rates and a statement which speaks about high inflation on one side, but concerns about slower growth on the other.