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Showtime: What Ben Bernanke Will Say Tomorrow

Are you ready for your close-up, Mr. Bernanke? Remember: Shoulders back, eyes front, ar-tic-u-late. It's OK to smile, but not like, say, Jack Nicholson busting through the door in "The Shining."

Of course, for all the media scrutiny on the Federal Reserve chairman's press briefing on Wednesday, he's almost certain to stick to the script. That will be whatever the Fed's Open Market Committee has to say tomorrow around 12:30 p.m. Eastern time in releasing its scheduled economic forecast. Every word in these communiqués is picked apart for its meaning. So any deviation between the FOMC statement and what Bernanke says could embarrass the Fed, cause confusion or, if he really strays off-message, throw the markets for a loop.

What we're unlikely to detect is any factional tension among Fed officials on monetary policy. As Marc Chandler, global head of currency strategy at investment bank Brown Brothers Harriman, points out:

It is noteworthy that in spite of the seemingly divergent views among FOMC members, there have been no dissents at this year's meetings. No one has voted to stop QE2. No one has rejected the Fed's wording that conditions will likely warrant exceptionally low yields for an extended period of time.
In fact, it would be surprising if he veered significantly from the FOMC's economic prognosis in March. The message last month: The economy is recovering at a "moderate" pace; labor conditions are gradually improving; although commodity prices are rising, "core" inflation (excluding food and energy prices) is subdued and expected to remain stable over the longer term.

What has changed in the interim is that the economy seems to be slowing while "headline" prices are rising. The FOMC will adjust its forecast accordingly, and Bernanke is likely to inject a note of caution in his remarks to reflect those changes.

Say goodbye to QE2
Much of the focus will naturally focus on the Fed's controversial policy of lubricating the economy through its policy of quantitative easing. Some market observers have speculated that a third round of bond purchases would be needed. Forget it, writes Goldman Sachs (GS) economist Andrew Tilton, who expects the program to end on schedule in June:

We see no chance of an expansion of the program at this time, as the political backlash following the announcement of "QE2" was significant, and no one on the FOMC has publicly made the case for an expansion.
That might quiet concerns that Bernanke is playing a dangerous game in pumping money into the economy. But it's also likely to reinforce the central bank's determination to keep interest rates near zero.

That would draw the usual (and arguably justified) complaints about monetary policy fanning inflation. Yet the Fed has shown no sign of wanting to tap the economy's brakes before it's up to speed. With the recovery still wobbly, there's no reason to think it will change that stance tomorrow.

Image from Wikimedia Commons, CC 2.0