Bernanke Will Speak Wednesday; What Will the Markets Hear?

Investors are likely to spend the next two days reading the smoke signals rising from the Fed, ahead of a two-day meeting and Wednesday's press conference by Fed Chairman Ben Bernanke. Economists expect the Fed will announce the continuation and completion of the $600 billion Treasury-purchase program. Any deviation from that script might swing the markets significantly this week. The meeting of the Fed Open Market Committee is expected to draw attention from traders everywhere, particularly given the uneasy tension between bulls and bears today. Some analysts worry that an end to the QE2 program could kick off a bear market, including a possible correction of 10 to 15 percent. Wednesday's press conference will mark the first for a Fed Chairman following a monetary policy decision by the Fed. If nothing else, the heightened awareness around what, and how, Bernanke will say Wednesday might drive traders a little batty as they try to parse body language, tone, and inflection. If concern over the market isn't enough to worry investors, there is also concern that Bernanke might use this meeting as an opportunity to prop up the dollar, which has been falling sharply. This was the essential tradeoff – increased money supply from QE2 propped up the economy, but at the expense of the dollar. With the government now concerned over the status of the dollar, might this be the time for the Fed to change course, end quantitative easing and bring the dollar back? Stay tuned…and maybe keep some scotch on hand this week.