Minutes from the Federal Reserve's October meeting could help determine the course of interest rates for the rest of the year.
The minutes, due at 2 p.m. Eastern time Wednesday, will be watched for clues about the Fed's $85-billion-a-month bond-buying program. Some strategists do not expect to see much, if any, discussion of slowing bond purchases, but traders have been handicapping whether the minutes will show more Fed members leaning toward tapering.
The Fed surprised markets with its decision not to taper its quantitative easing program in September, and it is believed spotty economic data coupled with the partial U.S. government shutdown and debt ceiling debate in Washington kept the Fed sidelined in October.
"I think the minutes can move the ball if it was a close call in October," said John Briggs, who heads cross asset strategy at RBS. "If it was a close call, and the economy handled the fiscal issues in stride then that's going to point toward December."
Fed Chairman Ben Bernanke spoke to the National Associations of Business Economists Tuesday evening and repeated that the asset purchases are not on a preset course, noting they depend on the economic outlook. Bernanke also emphasized that the end of QE does not mean higher a Fed funds rate, and he once more emphasized that those policies could be on separate paths.
To reinforce that, he stressed that short-term rates could also remain near zero even after the 6.5 percent threshold on unemployment is crossed. Bernanke said economic progress has been made, but not enough.
"I agree with the sentiment, expressed by my colleague Janet Yellen at her testimony last week that the surest path to a more normal approach to monetary policy is to do all we can today to promote a more robust recovery," a dovish Bernanke told the economists.
If the October minutes show Federal Reserve officials were concerned about the longer-term impact of the government shutdown and fiscal debate, and there was no big push by members for tapering, then the November jobs report Dec. 6 will become the next metric for the Fed and also for Fed watchers.
"That's the largest event between now and the [Dec. 17] meeting. I think the minutes can move the ball one way or the other but it won't solidify the decision," Briggs said.
He said yields moved higher Tuesday ahead of the minutes as traders speculated the Fed's release could point to a tapering in December.
MacNeil Curry, chief technical strategist at Bank of America Merrill Lynch (BAC), said the move in rates may be signaling something bigger. "I think we're ultimately headed to the 2.95/3 percent area," he said. Curry said he was looking for a base into 2.669/2.63 percent.
Besides Fed minutes, there is important economic data due before the open. CPI and retail sales are expected at 8:30 a.m. Business inventories and existing home sales will be reported at 10 a.m.
"I think [retail sales] will be telling as to whether the consumer is picking up," said Barry Knapp, head of U.S. equity portfolio strategy at Barclays. He said retailers' comments have been mixed, with Walmart (WMT) negative but Macy's (M) and Home Depot (HD) positive. "It's kind of spotty, but that's what happens at turning points."
Knapp said the retail sales number, forecast to be unchanged, should be a good clue as to how the holiday shopping season could go.
"I think we're going to do better than expected," he said, of holiday sales. "I think the effects of the tax hikes are fading."
Several retailers will report earnings Wednesday, including J.C. Penney (JCP), Lowe's (LOW), Williams-Sonoma (WSM) and Staples (SPLS). Earnings are also expected from Deere (DE), J.M. Smuckers (SJM) and Green Mountain Coffee Roasters (GMCR).