TheStreet.com's Jim Cramer says they still don't know the score, but they're aware of the need for a financial game plan.

At least the fundamentals are no longer sound. That was my takeaway from the two speeches given by our slow-to-understand government chieftains -- Treasury Secretary Henry Paulson and Fed Chief Ben Bernanke -- in their back-to-back soothing onslaught.

The short-sellers sure didn't like what they heard. They heard that the government might stand at the ready if things keep rolling over. There was a moment when Hank Paulson praised Fannie Mae (NYSE: FNM) (Cramer's Take) for the capital it has raised -- about a week's worth of reserves, one quipped -- and there was a sense that the term facility's extension would be the difference-maker for a Wachovia (NYSE: WB) (Cramer's Take) or a Bank of America (NYSE: BAC) (Cramer's Take). It sure wasn't a decline in loan losses that had them going.

I come back to the same thing. Unless the government says, "Look, examiners, ignore everything, because we can't have total chaos," and unless the stocks rally so much that they can do meaningful fund raises, Paulson and Bernanke don't have the horses to do the job. Their work yesterday was made easy by an oil future decline that triggered an S&P increase.

Macroeconomics, many economists agree, is as much an art as a science. And sometimes it requires the 'reading between the lines' skills of a Kremlinologist during the Cold War.

Here's my reading between the lines analysis of recent Fed statements on housing: more housing-related write-offs (and pain) for certain banks and others with mortgage-backed debt.

Yellen, Bernanke speeches: Signals?

The evidence: first, San Francisco Federal Reserve President Janet Yellen, currently a non-voting member on the Fed's Open Market Committee, delivers a low-key, candid-but-not-alarmist speech Monday to the San Diego Economics Roundtable in which she warns that "things could get worse before they get better" and that problems affecting the financial system could stick around "for some time."

Economist David Wang said Yellen's speech could be interpreted "as her staking out a claim on the dovish [interest rate cut] end of the Fed" were it not for the fact that the measured, always dispassionate Yellen "is not known for politicking or embellished commentary."

U.S. Federal Reserve Chairman Ben Bernanke said Tuesday the world's most powerful central bank may extend securities dealers' access to direct loans from the Fed into 2009 as long as emergency conditions "continue to prevail."

Bernanke, speaking Tuesday in Arlington, Virginia, at the FDIC Forum on Mortgage Lending for Low/Moderate Income Households, said "the Federal Reserve is strongly committed" to financial stability and is "considering several options, including extending the duration of our facilities for primary dealers beyond year-end."

Further, Bernanke also said the Fed would "take a leading role" in any liquidation process for a failing investment bank.

The Fed, and other U.S. Government institutions, as well as other major central banks, are in the midst of dealing with the aftereffects of the end of the housing boom in the U.S., which led to a surge in mortgage foreclosures and related asset-back defaults.

The European Central Bank's quarter point interest rate increase has been called 'counter-productive,' 'unnecessary,' even 'self-defeating.'

All of which begs the question, why did the ECB last Thursday increase interest rates so soon? (The ECB increased its key interest rate, the refinance rate, a quarter point to 4.25%, last Thursday.)

One argument is euro zone inflation, presently running at about a 3.7% annualized rate. That's well above the ECB's 2% inflation limit.

These days, European Central Bank President Jean-Claude Trichet isn't too popular in currency market circles, if one trader is any indication.

Trichet, a legendary inflation hawk, campaigned for and secured a quarter-point interest rate increase Thursday, to 4.25%, in the ECB's key, short-term interest rate, the refinance rate. Many economists thought Trichet's action was premature, despite Europe's 3.7% annualized inflation rate, and that it could spell further economic slowing Europe. Unbowed, Trichet plowed ahead.

With the above as a backdrop, many currency traders, Andrew Resnick among them, plowed ahead with euro-long trades on the calculation that a higher interest rate for the euro will cause the euro to rise. Resnick went long with the euro in the euro-dollar currency pairing.

But then what did Trichet do? He stated at the regular post-ECB rate decision press conference that he has "no bias" and that "we have no pre-commitment" to raise rates further - - signaling that one interest rate increase may be enough, Bloomberg News reported.

The result? The euro plunged versus the dollar after his comments: it fell 1.2 cents - - a large price move in the currency market - - to $1.5758 Thursday morning.

And with it plunged Resnick's profits for the day. All his trades were stopped-out for losses.

'Trichet is making many friends among traders'

"Trichet," Resnick said, "isn't making many friends among traders, and probably not among business executives and economists as well." Resnick followed his evaluation of Trichet's social standing with several candid and frank, descriptive, colorful comments about the ECB president that can't be published here. Suffice it to say that Resnick is not happy with Trichet's two-step.

In a move that surprised almost no one, the European Central Bank increased its key interest rate, the refinance rate, a quarter point to 4.25%. The increase brings the refinance rate to its highest level in seven years.

The currency market, which for the most part had already factored-in the ECB rate increase, did not react initially following the decision. The euro was virtually unchanged versus the dollar at $1.5882.

The other major currency pairings also held their ground. The dollar was unchanged against the pound at $1.9884 and the dollar rose slightly, up 0.10 yen to 106.25 yen, versus Japan's yen.

Economist: Trichet 'jumped the gun'

London-based economist Mark Chandler told BloggingStocks Thursday the ECB's decision was no surprise, but that doesn't decrease his disappointment with the ECB's stance.

"I afraid I'm going to really disagree with this one. I understand where [ECB President Jean-Claude] Trichet is coming from, but he's jumped the gun from my perspective. He could have waited another quarter," Chandler said. "There's a real concern now he's going to throw Europe into a recession like America, and if the dollar continues to fall against the euro, his rate increase won't lower inflation all that much. I don't like that bargain at all."

In comments made June 23 to Germany's Die Zeit but published only today, European Central President Jean-Claude Trichet warned of an "explosion" in inflation if the bank does not act decisively to counter it, Reuters reported Wednesday.

"If we are not resolute, there is a risk that inflation will explode. If we act decisively, then we can master the situation," Trichet said in the German text of comments published by weekly Die Zeit on Wednesday.

Trichet's comments appear one day before the ECB's meeting on interest rates. Many economists expect the ECB to increase its key interest rate, the refinance rate, by 25 basis points to 4.25%. (The ECB decision will be announced Thursday at 7:45 a.m. EDT.)

At issue: How to check inflation

European inflation is running at a 3.7% annualized rate, and trending up. That fact, combined with Trichet's comments published Wednesday, "all but guarantee a rate hike Thursday by the ECB," in economist David H. Wang's interpretation.

So much for consensus building.

That was how one currency trader characterized the present mood in the currency markets regarding the European Central Bank's upcoming Thursday July 3 meeting to discuss interest rates and monetary policy.

"Initially there was talk that [ECB President Jean-Claude] Trichet would make a concession to the doves, and hold off raising rates for this meeting, but now the belief pretty much is that they'll raise rates a quarter point to 4.25%," currency trader Andrew Resnick said Monday. Resnick added that he is short with the dollar in the euro-dollar and British pound-dollar currency pairings.

European inflation is running at a 3.7% annualized rate, and trending up, Resnick said, and "a 4% refinance rate just doesn't look like it can cut the mustard and contain inflation the way Trichet wants inflation contained." If the ECB increases the refinance rate -- its key, short-term interest rate -- it would be the bank's first increase in a year.

It's a European anti-inflation campaign that will require boldness, creativity, and patience.

That was how one economist described a potential monetary policy tack by the European Central Bank (ECB) for the quarters ahead.

London-based economist Mark Chandler told BloggingStocks that typically, a central bank will increase interest rates to fight inflation. Paradoxically, he's not recommending that the ECB do that now.

"It is a bit of a paradox, but if the ECB raises interest rates it may have the effect of, in fact, increasing inflation," Chandler said. (Euro-zone inflation is presently running at about a 3.7% annualized rate -- well above the ECB 2.0% limit, according to Eurostat.)

Contain commodities prices, contain inflation

Here's how an interest rate hike may hurt inflation's cause: a rate hike would put the euro, once again, in a superior investment position versus the U.S. dollar, causing the already-weak dollar to fall more, Chandler said. As the dollar continues to fall, commodity prices -- including oil -- will continue to rise, as investors seek to preserve purchasing power of the decreased value of dollar-denominated commodities, and as a general inflation hedge.

The European Central Bank's president has 'clarified' earlier comments on the continent's monetary policy by stating that interest rates may, or may not, rise in the months ahead.

"I said that we could increase rates by a small amount in order to secure a solid anchoring of inflation expectations,"' ECB President Jean-Claude Trichet told the European Parliament in Brussels Wednesday, Bloomberg News reported. "I didn't say that we could envisage a series of increases. That being said, of course we never pre-commit."'

Earlier this month, on June 5, Trichet said the ECB might raise its key short-term interest rate, the refinance rate, by 25 basis points, to 4.25% in July to contain rising inflation in Europe. Inflation is currently running at a 3.7% annual pace, according to Eurostat, the European Union's economic statistics office, well above the ECB's 2% limit. (pdf)

Trichet dispels multi-hike chatter

During his July 5 comments Trichet did not rule out multiple interest rate increases, which the currency markets interpreted as a signal that at least one interest rate increase was ahead, possibly more, and the markets bid-up the price of the euro. On Wednesday, Trichet sought to dispel that notion, while at the same time letting the markets know that no rate decision has been made.

Still, the euro rose about one-half cent against the dollar Wednesday to $1.5645, although it should be noted that the currency markets were also responding to anticipated stand-pat stance on interest rates by the U.S. Federal Reserve. And this afternoon, the Fed, as expected, kept its key, short-term interest rate the same at 2%, while also saying the balance of risks had shift to inflation containment from slowing economic growth / economic recession.

Former U.S. Federal Reserve Chairman Alan Greenspan believes financial market turmoil that disrupted the bond market and created liquidity concerns may extend into 2009, Bloomberg News reported Tuesday.

However, Greenspan said the Fed's efforts in March to revive credit have reduced instability. "Things do at this particular stage look a little bit better," Greenspan told Bloomberg News via a conference call, but added that financial doldrums are likely to linger a "good number of months or into next year."

Further, when asked if the U.S. economy was in a recession, Greenspan said, "We are on the brink," Reuters reported Tuesday.

Greenspan's remarks occur one day before the now Ben Bernanke-led Fed announces it interest rate decision, on Wednesday at 2:15 p.m. EDT. The Fed is widely expected to keep interest rates the same, while in its accompanying statement also striking a balance between concern over rising inflation and a pronounced economic stall.

The dollar is on-pace to record a large weekly decline Friday -- undoing last week's gains against the euro and pound -- as traders and analysts debated the likely next step for the U.S. Federal Reserve and European Central Bank.

The dollar traded at about $1.5637 to the euro Friday at mid-day, which would represent a 3-cent decline for the week, if it maintains that level by the New York close at 5 p.m. The dollar also traded at $1.9760 to the British pound, also about a 3-cent loss for the week.

Currency trader Andrew Resnick told BloggingStocks Friday concerns about rising inflation in Germany and financial service losses in the United States have caused a sentiment adjustment in the often-volatile currency markets.

A shift in sentiment

"Last week, the debate was structured around rising inflation in the U.S. and how long the Federal Reserve could hold-off before raising interest rates. That was bullish for the dollar," Resnick said. "But this week we've seen a reversal. The talk now is about [European Central Bank President Jean-Claude] Trichet beating [Fed Chairman Ben] Bernanke to the punch on interest rates, and that put a lot of traders in euro-buy mode." Resnick added that he is presently flat, or has no open currency trading positions.

Notch yet another data point in the monetary policy tightening camp.

Inflation in the euro-zone accelerated in May to a 3.7% annualized rate, as surging fuel, food, housing forced up costs across the 15-nation currency area, Eurostat, the European Union's economic statistics agency, announced Monday. (pdf)

Further, euro-zone inflation is now running at its highest rate since 1996. Inflation had increased at a 3.3% annualized rate in April, Eurostat said. Food prices and transportation prices, up 6.4% and 5.9%, respectively, in the past year, were major factors in inflation's rise.

Currency traders responded to the inflation news by bidding up the euro and short-circuiting - - at least for the time being - - a recovery in the dollar. The euro gained about 1 cent to $1.5483 versus the dollar in Monday afternoon trading.

Trans-Atlantic two-step

London-based economist Mark Chandler told BloggingStocks Monday the May euro-zone inflation data is another debating point for the inflation hawks on the European Central Bank. "Even before the latest data everyone had pretty much discounted that [ECG President Jean-Claude] Trichet wants and is going to get a rate increase. But now there's concern there may be more than one rate increase ahead. The currency markets certainly reflected that," Chandler said. "It's a bit premature to start talking about multiple rate hikes, in my view."

The dollar Friday was poised to record its largest weekly gain versus the euro in three years, on a growing consensus that the U.S. Federal Reserve will increase interest rates soon to check rising U.S. inflation.

The dollar traded up about one-half cent to $1.5372 versus the euro early Friday afternoon - - a level that if sustained at the New York close at 5 p.m. EDT would give the greenback its biggest weekly gain since early 2005, Bloomberg News reported Friday.

The dollar also rose Friday against the other major currencies. The dollar increased about one-half cent to $1.9494 versus the British pound, and about sixth-tenths of a cent to $1.0476 versus the Swiss franc. The dollar was unchanged versus Japan's yen at 107.90 yen.

Consumer prices rose 0.6% in May, above the consensus estimate, the U.S. Labor Department announced Friday, as surging energy prices continued to fuel inflation.

Economists surveyed by Bloomberg News had expected May consumer prices to increase 0.5%. Consumer prices increased 0.2% in April 2008.

Also, the core rate, which excludes the volatile food and energy component, rose just 0.2%, in-line with the 0.2% Bloomberg News survey consensus estimate. Core consumer prices increased 0.1% in April 2008.

On a year-over-year basis, consumer prices have risen 4.2% and the core rate has risen 2.3%. The core rate remains slightly above U.S. Federal Reserve's 'comfort zone' for inflation. The Fed uses the core CPI rate as one of its primary gauges of consumer-based inflation.

Also, consumer prices have risen at a 4.9% rate in the last three months -- another sign of oil-fed inflation working its way into the U.S pricing system. Inflation is now a primary concern for the U.S. Federal Reserve, overtaking fears of further economic slowing.