Global Macro: Markets Await Federal Reserve Answers

NEW YORK ( TheStreet) -- Markets remain fairly muted in the days leading up to the release of the Federal Reserve minutes on Wednesday. In recent weeks, board members of the Federal Reserve have come out touting that there may be a need to rein in current easing measures. Although markets have entertained the idea, it seems unlikely that the Fed opts for such action. The recovery is going as well as anyone could have hoped, and data are just beginning to look up. With the economic landscape teetering on an edge, the Fed is unlikely to pull the carpets out from underneath.

A major catalyst to the current run higher has been fueled by the widely known Bernanke Put. This is merely a euphemism for the idea that the Federal Reserve is actively providing enough liquidity for financial markets to continue their rise higher, even in the face of tepid economic growth.

The chart below is of the S&P 100 Index Fund ( OEF) over the S&P Equal Weight ETF ( RSP). This pair looks at larger-cap stocks in the S&P 500 index and whether the market is positioning in a defensive nature. This week, the pair has been biased slightly to the upside as markets have been left uncertain to the future value of the dollar. The pair will either propel higher, if the minutes show the possibility of removing simulative policy measures, or continue lower, if policy should be left in place.

The next pair is of the Barclays TIPS Bond Fund ( TIP) over the Barclays 7-10 Year Treasury Bond Fund ( IEF). This pair measures inflation expectations and whether future rates are at risk of rising. The pair has continued its trend toward multi-year lows, which signals to the Fed that more easing is possible.

The focus should not be on rising rates, at this point; rather it should focus on solving the employment picture. Long-term unemployment and discouraged workers remain an issue, and furthering the monetary easing measures should allow for growth to continue its gradual trend higher. With fiscal policy not doing its part in aiding the recovery, it remains unlikely that Bernanke will similarly remove the little he has left to offer markets.

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