FOMC Minutes/Bernanke Preview

The Fed remains critical to the market, so today’s Fed events today will be front-and-center like they always are.  But, whatever the immediate “reaction” to the FOMC minutes and Bernanke, keep in mind that the very broad consensus is that the Fed will begin “tapering” at the September meeting.  That is the baseline expectation.

With regard to the minutes, they have the potential to be a touch hawkish, as there will probably be a Fed official or two who says tapering should start in July.  But, unless there are “many” Fed officials who espouse that view, it won’t change September as the consensus date.

Bernanke’s speech, if he touches on monetary policy at all, will likely be dovish. No doubt he will re-iterate the “tapering is not tightening” refrain.

He’s right, of course, but saying that doesn’t change the fact that tapering will  likely start in September. Unless he says that tapering might not start until ’14, the comments won’t really alter the baseline expectations.

Bottom Line

For all the incremental headlines over the past few days (and this morning) the rally this week is bout investors becoming more comfortable with the “tapering” narrative and the reality of higher interest rates in the future.

The fact that higher stock prices and higher rates no longer appear to be mutually exclusive is bullish for the market, and as long as that continues, expect the path of least resistance to be higher in equities.