Dow Dances to Mergers' Song

"A 5.25% federal funds rate seems to be just what the doctor ordered: the maintenance dosage of monetary medicine to keep this happy combination intact, until or unless the economy shows different symptoms," writes Neal Soss, chief U.S. economist at Credit Suisse. "We think that's exactly what Chairman Bernanke will signal with his testimony."

Soss adds that Bernanke likely will repeat what Fed speakers have recently drummed into traders' heads -- that inflation risks remain, but the economy is in good shape.

Soss' confidence in Bernanke's current policy is a far cry from the sentiment during the Fed chairman's early days in 2006, when he was struggling for credibility and flexibility. Now, the markets seem to have placed their trust in Bernanke to maintain this strong growth, and to keep inflation in check.

Indeed, Tuesday's pre-testimony buying spree is a testament to investors' faith that Bernanke will not upset the apple cart.

Last summer, Bernanke was still reeling from his rookie mistakes, namely his offhand remark to CNBC's Maria Bartiromo about the market's incorrect interpretation that he's a dove. The newly anointed chief was fighting for authority, as stocks had languished since May 2006, and investors perpetually expected the next FOMC meeting to ring in the last rate hike.

But by autumn, the market was back in an upswing, the Fed had stopped raising interest rates after 17 consecutive increases, and the economy was starting to land softly.

Investors have now embraced Bernanke, and many give him credit for engineering a so-called Goldilocks economy marked by decent economic growth without high inflation. Bernanke has to show the markets that he's vigilant about inflation, but he also has to "give himself the flexibility to not act or raise rates because of one piece of data," says Patel.

If he sticks to the recent script, the markets' tall order likely will be filled.