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Eyes on Fed in Coming Week

The Fed's decision to increase the discount rate will have investors watching the central bank in the coming week, but news from foreign markets could steal the show.



) -- Investors will keep a close watch on everything coming out of the

Federal Reserve

next week, but the real market-moving events may come from abroad.

The Fed's decision to raise the discount rate late Thursday signaled that the central bank is gradually beginning to normalize monetary policy, even though Fed Chairman Ben Bernanke said as much in his recent

statement to the Committee on Financial Services. Nevertheless, the move still shocked global markets at the end of an otherwise

strong week.

In the

Fed's discount rate statement, the central bank took pains to assure that the move does "not signal any change in the outlook for the economy or for monetary policy," but that won't stop markets from scrutinizing upcoming Fed releases and speeches for any hints as to when it plans on raising interest rates.

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Federal Reserve Chairman Ben Bernanke

"All Fed events will be important because investors want to see whether the Fed will continue to be the market's friend," said Burt White, chief investment officer at LPL Financial. White said he fully expects Bernanke to emphasize that the central bank won't raise interest rates until the employment picture improves and there's

evidence of rising inflation.

On Wednesday, Feb. 24, Bernanke appears before the House Committee on Financial Services to discuss the Fed's semiannual monetary policy report, followed by additional testimony on Thursday morning before the Senate Committee on Banking, Housing and Urban Affairs.

On Friday afternoon, member of the Federal Reserve Board of Governors Daniel Tarullo discusses financial regulation at the U.S. Monetary Policy Forum in New York.

However, upcoming Fed events may not make a significant dent on the market next week. Markets already shrugged off the discount rate change, evidenced by

U.S. indices turning positive by Friday afternoon.

"I don't think anything from the Fed will have more of a market-moving impact than the discount rate hike that we got

Thursday night," said Michael James, managing director at Wedbush Morgan Securities. "And I think the fact that markets have been able to shrug off the rate hike Friday shows that there isn't likely to be anything the Fed says next week that will have a bigger impact than what we've already seen."

He expects the coming week's most significant market movements to stem from further developments regarding Europe's sovereign debt issue.

"I think at this point, no news is good news, and likely the reason why markets have been able to perform well this week," he said, referring to the lack of noise coming from Greece and other struggling eurozone countries this week. "So sentiment and psychology will have just as much of an impact, if not more, than anything in terms of economic news next week."

The bulk of the coming week's economic reports will be released in the latter half of the week, beginning with January new-home sales from the Commerce Department on Wednesday. Markets get another read on the health of the housing market Thursday morning with the Federal Housing Finance Agency's housing price index for December.

Feb. 25 also brings the January durable goods orders report from the Commerce Department. The Labor Department's weekly initial jobless claims release will likely garner special attention after claims recently rose to a higher-than-expected level of 473,000. Economists are expecting claims to decline to 465,000 in the week ended Feb. 20.

The most important macroeconomic release of the week will likely be Friday's second reading on fourth-quarter gross domestic product, which economists expect to come in at 5.6%, down from an initial estimate of 5.7%.

The Chicago purchasing managers' report for February, the University of Michigan's final consumer sentiment reading for February and existing-home sales for January are also on tap for release Friday morning.

Companies will continue to report earnings with results coming from key retailers such as

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are also expected to release results.

White also sees news from overseas as taking a more central focus next week.

"The big thing is that we'll be getting China back online. We haven't heard anything from them in a week, and the last we heard was that they're tightening again. Meanwhile, a lot has been happening here," White said.

"I can't wait to see the very first headline out of China. I really think that if it's about them tightening again, that will really send this market into a tizzy."

-- Written by Melinda Peer in New York