The moment Ben Bernanke announces that the first round of QE tapering will begin immediately, with $10 billion, it’ll be old news—barring a surprise in terms of the amount and/or the target (I expect they’ll mostly, if not entirely, apply the cut to treasury purchases, as opposed to mortgage backed securities). If they present a shocker, and go large, I expect the market will go south. If they hold off, I expect a rally.

The news of import tomorrow will be Bernanke’s followup commentary. If he runs true to recent form, he’ll promise that they’ll tread with great caution going forward, and that QE will be ramped right back up the moment the data disappoint: The last thing in the world this Fed wants to do, alas, is upset the all-intimidating stock market (market here = traders btw). As for the wiser bond market (market here = investors btw), the Fed has to know that it’s pretty much out of ammo. While a delay in the taper would likely see a brief rally in bond prices (lower yields), sooner or later bondholders will wake up to the reality of very low upside and huge potential downside, collect their winnings and move on—barring a new recession anytime soon.

So, if the Fed’s so beholding to the stock market, why would they do it? If the market wants them to hold off, why wouldn’t they simply comply? Well, as meek as the majority of the voting members seem to be, I believe they do see the potential that too much of a good thing—a good thing that, at best, is suffering from the law of diminishing returns—could lead to over-speculation and, thus, the inflation of asset bubbles, if it hasn’t already.

Stay tuned…