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Federal Reserve Chairman Ben Bernanke is set to speak in each of the next two days in his semi-annual Congressional testimony. He will spend Wednesday speaking in front of the House Financial Services Committee while Thursday he will testify in front of the Senate Banking Committee, with both testimonies set to begin at 10 am.

Market Sensitivity

Last week, when Bernanke spoke after the close on Thursday, S&P futures climbed over 20 points and kicked off the rally that has since seen stocks return to record highs. Stock markets as well as bonds and gold all moved sharply on the comments and indicate just how sensitive the market has been and should be this week to Bernanke's comments.

Some in Congress have expressed concerns over the Fed's massive foray into new policies, including quantitative easing, and wonder if some of the so-called costs of the policies will outweigh the benefits. Chairman Bernanke has spoken at length to this dilemma and many inside the Fed believe that the benefits have outweighed the costs to this point but some fear that further easing risks seeing the marginal costs of more easing outweigh the marginal benefits. In this scenario, the Fed would stop printing money.

RELATED: Markets Get Bearded As Bernanke Reiterates Easy-Money Policy Is Here to Stay

It's Hammer Time

"This will be yet another opportunity for Bernanke to hammer the point that the Fed intends to remain accommodative for an extended period of time, even as it considers scaling back the amount of its monthly asset purchases," wrote Credit Suisse U.S. Economist Neal Soss this morning. "Bernanke probably will not dissuade the markets of the notion that a tapering is likely as soon as September. But his comments may sound dovish as he reiterates that any change in the size of asset purchases is dependent on the economic data and on financial market conditions."

Tying the tapering of purchases to the economy could work in the market's favor, though it means that the bad news is good news dilemma will remain for some time. Some leading economic indicators have worsened of late and continued weakness would mean the Fed would be less likely to taper purchases. Therefore, easing would be more than previously thought and QE-sensitive assets, such as stocks, should rise.

"The run-up in yields in recent weeks, for example, practically demands that Bernanke comment specifically on the risks posed by tighter financial market conditions. He may also focus on the risk of lower-than-desired inflation."

"We expect that Bernanke will describe several positive economic developments since his February testimony and communicate the FOMC's greater confidence in the outlook. But, as in recent years, he likely also will emphasize the mediocre nature of the economic recovery and, in particular, the continued inadequacy of US job growth."

Credit Suisse also says that there is a small probability that Bernanke could use the speech as a time to formally announce his retirement at the end of the year, as is expected, and pave the way for many to speculate about who his predecessor would be.

Tapering Forecast

Currently, Credit Suisse agrees with the apparent consensus that the Fed will begin tapering asset purchases in September. They see the Fed reducing total purchases to $65 billion per month from $85 billion per month by slowing the rate of purchases of both Treasuries and MBS by $10 billion per month each. Then, they expect a further $20 billion reduction in late January, again in April, and seeing the program end by July 1.

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