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Market Preview: Right Said Fed

NEW YORK ( TheStreet) -- Choose your words wisely, Ben Bernanke! There's very likely a summer rally riding on exactly what you and your buddies on the Federal Open Market Committee say next.

The market is still digesting last week's incredible turnaround. Last Tuesday, for example, the Dow Jones Industrial Average scraped 12,521 in intraday action and closed at 12,617, losing ground for a third straight session. The yield on the 10-year Treasury bonds broke below 1.4% for the first time ever, and Europe was still in teeter territory.

Fast forward a week and a Mario Draghi promise to do "whatever it takes." The Dow is sitting above 13,000 and there are some voices out there calling for the Federal Reserve to announce QE3 tomorrow in order to ensure the politics of a presidential election don't come into play later in the year.

The general view is the Fed could move its promise to keep interest rates at historic lows to sometime in 2015 from the current pledge of late 2014. More than that though, investors will be interpreting what changes in the language of the policy statement mean for the timing of the additional stimulus that Wall Street already appears to have priced in.

Here's how Scott Wren, senior equity strategist at Wells Fargo, described the market mood in commentary late Tuesday.

"Can you feel it? The pressure is building. Investors want the Federal Reserve and the European Central Bank (ECB) to announce something. Right away. This week," Wren wrote. "The U.S. stock market's push higher last week was largely a reflection of the expectations for some sort of imminent action, or hint of imminent action that might result from the two-day Federal Open Market Committee (FOMC) meeting and the ECB meetings this week. It is now a game of wait and see for the financial markets."

UBS also weighed in on what it thinks the Fed will do on Tuesday while lowering its estimates for gross domestic product in the final two quarters of 2012. That's the rub, of course, that the reason the Fed appears inclined to do more is because the economy is still doing less. Investors in equities seem willing to live with this if it means more stimulus in the near term, effectively putting the big picture on the back burner.
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