KEY DATA: CPI: +0.3%; Excluding Food and Energy: +0.2%/ Starts: +9.8%; Permits: +7.4%/ Earnings: -0.4%

IN A NUTSHELL: “With housing accelerating and inflation edging upward, the barriers to a Fed hike are starting to crumble.”

WHAT IT MEANS: With Greece on the back burner for now, we can focus on the U.S. economy again and the data seem to be trending upward. The residential sector looks like it really is on the move as housing starts jumped in June. Yes, there was a major decline in May, but the wild swings were due to outsized changes in the ever-volatile multi-family segment. Comparing second quarter starts to first quarter numbers, the monthly average rose 17% – not annualized. In other words, residential investment should be up big-time in the second quarter GDP report that comes out July 30^th.   The increases were unevenly distributed across the nation. The lagging Northeast is finally coming around and the South is really strong. But the Midwest seems to be fading while in the West, construction is still solid but not moving forward. The best news was that permit requests were off the charts. Second quarter permits ran nearly 9% above starts and that points to even strong construction in the months to come.

The economy is one part of the Fed’s decision function; Inflation is a second segment. Consumer prices rose moderately in June, led by another jump in gasoline costs. But it wasn’t’ just fuel or eggs. Most other major components were up as only used vehicles and clothing posted declines. Excluding food and energy, prices rose by 1.8% over the year, not far from the Fed’s target. Over the last five months, overall consumer inflation has been running at a nearly 3% annualized pace. That should reduce concerns about too low inflation. When the energy price collapse comes out of the year-over-year comparisons in the fall, overall inflation should approach the Fed’s target. That is why Fed Chair Yellen keeps pointing to the medium term when it comes to inflation.

The modest acceleration in inflation may make the Fed’s decision easier, but it hurts workers. Real earnings fell in June. Flat wages and rising prices don’t make for a good combination when it comes to purchasing power.

MARKETS AND FED POLICY IMPLICATIONS: “Could it be? Yes it could. Something’s coming, something good (?). If (you) can wait.” The wait for the first rate hike may not be that much longer. As the data come in, it seems the only soft spot in the economy is the manufacturing sector. And with prices beginning to move toward the Fed’s target, the concerns about raising rates should be fading. Is the economy strong enough to absorb a rate hike? Let me ask it this way: Would a 25 basis point increase really make the cost of money prohibitive? Hardly. The July FOMC meeting is likely to contain a real battle over how much to hint at a rate hike. The Fed Chair seems to want to get it over with as reasonably soon as possible. But others are holding out as the data are not overwhelmingly strongly. Investors really should start building in a hike and jettison their “when I see it I will believe it” attitude.