Are we going to see a rate policy divergence between the Fed and ECB? For much of the first half of 2008, investors have been talking that ECB sooner or later will cut rates to follow the steps of the Fed.

But maybe one fact was neglected. Unlike the Fed’s dual mandate, ECB has the single mandate of fighting inflation. This makes sense especially when I consider: What if President Trichet is a truly admirer of Paul Volcker, a.k.a inflation fighter to bring down inflation no matter what?

Will dollar’s further downfall and the possibility that Gulf countries unpeg dollar eventually pressure Bernanke to adopt similar policy stance? Let’s wait and see.

But bear in mind, monetary policy 101, something we have learned in the past several decades, tells us maintaining price stability is the No. 1 priority for the central banks. Yes, no matter what.

Today is the high time to declare we are officially in oil shock of 2008, beating 70s in prices, but not in terms of the hit to the economy. Nonetheless, nobody should feel complacent about it.

Jim Hamilton has these two graphs to share:

Oil crises in 70s made the economy today less reliant on oil, but don’t take it for granted.

According to BLS and WSJ: The U.S. unemployment rate posted its sharpest one-month increase in 22 years last month, suggesting U.S. consumers already facing a housing slump and soaring gasoline prices now confront growing pressure from a weakening jobs market.

The data, which included a fifth-straight drop in nonfarm employment, should take financial-market expectations of Federal Reserve rate increases as soon as this fall off the table.

The below graph shows the unemployment rate and the year-over-year change in employment vs. recessions.

(click to enlarge; coutesy of CR)

Note the current recession indicated on the graph is “probable”, and is not official.

Take a deep look at Lehman with David Einhorn and what’s different between Bear Stearns and Lehman Brothers.

(clikc to play. source: CNBC)