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New Federal Reserve chief Ben Bernanke didn’t upset markets last week during his two-day question-and-answer session with lawmakers reports USA Today.
And the Fed isn’t likely to surprise Wall Street when it meets in late March for the first time with Bernanke at the helm to discuss interest rate policy, since Bernanke all but confirmed to Congress that the central bank will raise rates another quarter point.
But the May 10 Fed meeting, the second under Bernanke’s watch in the post-Alan Greenspan era, is more likely to put investors on edge.
The reason: The May meeting is likely to provide investors with their first insights into the Fed’s personality under Bernanke and offer the best clues on when the Fed might stop raising rates.
The recreational vehicle industry also will be watching for clues as interest rates are a key factor concerning the buying habits of consumers and RV retailers.
According to the national newspaper, here’s why the May 10 Fed meeting will be pivotal:
• It will be the first real meeting where the “Bernanke factor” will be in play. “May 10 will be a far more revealing meeting in terms of understanding his biases,” says David Sowerby, portfolio manager at Loomis Sayles. “It’s the first time he will demonstrate that he is the new sheriff in town.”
• It’s still unclear whether the Fed will raise rates at this meeting. Strong economic data in January, such as robust retail sales and new housing starts, increases the odds of another rate increase in May, says Fritz Reynolds, portfolio manager for Reynolds mutual funds. A quarter-point increase in both March and May would push the target on the short-term Fed funds rate to the psychologically significant 5% mark.
• It could shed light on whether the Fed is done raising rates. “The real question everyone wants to know is when will the Fed stop?” says Janna Sampson, director of portfolio management at OakBrook Investments. “I don’t think he wants to be perceived as a guy trying to shake up the world at his first meeting.” He says the likelihood is it won’t be before May 10 until investors find out if “we are getting closer to the end.”
• It doesn’t happen for 12 weeks. Bernanke himself says the Fed will base its future policy decisions on fresh economic data. There’s no shortage of data the next three months, including three updates apiece on consumer confidence, home sales and retail sales.
“The Fed will make their decisions on rates based on what the economy is doing,” Reynolds says.