The Fed’s minions have a full agenda this week, with scheduled appearances for both movers and shakers as well as those who toil away in relative obscurity. Inevitably, Fed chatter becomes speculation on interest rates, and this week promises to live up to that tradition.

The fun starts with tomorrow’s Senate testimony from Ben Bernanke, the chosen man to fill the shoes of Alan Greenspan, who retires at the end of January. The Financial Markets Center has come up with 70 recommended questions for the Fed chairman-designate on anything and everything that might conceivably be of relevance in vetting the mind of the man who’ll soon take the helm at the most powerful central on the planet. We have no doubt the Senate’s affinity for propagating queries will add to the laundry list.
If the Bernanke inquisition doesn’t manage to roil the markets for a time this week, perhaps the lesser names in the central banking system can do the trick. The lineup of monetary opining includes scheduled talks by Chicago Fed President Michael Moskow and his counterpart at the Dallas Fed on Tuesday; Philadelphia Fed President Anthony Santomero on Wednesday; St. Louis Fed President William Poole on Thursday; and none other the Maestro himself today, who counsels on things far and wide via video conference at a Bank of Mexico confab today.
And just to keep things bubbling on the data front, there’s tomorrow’s release of October wholesale prices and on Wednesday the update for consumer prices. The consensus forecast, as per TheStreet.com, calls for a relatively mild 0.1% rise in headline CPI and 0.2% for core CPI for October.
The bond market may be alert to the possibility of surprise, but based on last week’s trading the 10-year Treasury Note has regained a modicum of calm. Last week’s session ended with a yield below 4.6%, reversing what had been a run on higher yields earlier in the week. But behind a front of relative clam, the spread between the 10-year and 2-year Treasuries continues to tighten. As of Friday, a mere 10 basis points separates the two.
It’s a week, in short, that holds the potential for volatility, courtesy of a yield curve that’s virtually flat, a Senate debate on the merits of the proposed successor to Alan Greenspan, a fresh batch of inflation due for release, and an array of speeches due from Fed representatives.
Speaking of volatility, there’s less of it these days–again–in the stock market. The VIX Index, a volatility measure of the S&P 500, has been falling sharply in November after rising from August through mid-October. Assuming relatively tame inflation reports on Tuesday and Wednesday, as the market’s expecting, the fading volatility is in sync with equities’ recent climb. Over the last month, the S&P 500 has posted a nice run higher, rising about 5.5% as of Friday’s close from October’s intraday low. The stock market’s summer highs are, as a result, within shouting distance once again. The question of whether the S&P 500 is still within a trading range will weigh heavily until and if an upside breakout occurs in the 1245 range (the S&P closed Friday at 1235). If the 1245 ceiling, or thereabouts, holds, all bets are once again off.
In sum, the equity market’s upward bias, and the bond market’s relatively calm suggest all’s right with the world. What, then, are the catalysts that might confirm such optimism, or send it crashing down onto the rocks of surprise? Perhaps one of the Fed heads, or a Fed-head wannabe, will lend a clue.