The Coming Week: Old Enemies

In fact, one sure way to lower oil prices would be for the U.S. to cut back on consumption, slowing down its economy. That would, in turn, slow down China, Japan and Europe, all of which depend on U.S. consumption as a driver, lowering the demand for oil.

"There's a fairly decent probability that the U.S. economy is going to slow down radically over the next 12 to 18 months, if not go into a recession," Mendelsohn said.

Another factor bolstering that argument is the so-called inverted yield curve. Just last week, the yield on the benchmark 10-year Treasury note dipped below that of the two-year note. Yields on shorter-maturity debt are usually lower. Some believe the situation is a harbinger of recession because it crimps lending margins.

Economists, including Fed chairman Alan Greenspan, have offered a variety of reasons why the inverted yield curve does not signal a recession now. Many traders view the inversion as a sign that the Fed has overshot on its 13-month campaign of raising short-term interest rates. Earlier in 2005, Greenspan referred to long-term rates' unwillingness to rise with their short-term counterparts as a "conundrum."

When the Fed last hiked its overnight lending rate by a quarter-point in mid-December, the market focused on a change in language in its policy statement that seemed like a hint for Wall Street that the end of rate-tightening was near. It dropped its previous reference to "policy accommodation," signaling that the new fed funds target of 4.25% is no longer low enough to spur economic growth by itself.

On Tuesday, the Fed will release the minutes from its December meeting, and investors will scour them for a sign that the Fed plans to pause after another quarter-point rate hike in January.

"I would expect to see something in the minutes that signals that January is the end," Mendelsohn said. "The yield curve is telling them that. Bernanke will get a chance to sit back and watch what happens in the economy."