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Federal Reserve Plots How It Will Raise Interest Rates

Central Bank Sends Out Warning To Investors: Surprises Will Come

The Federal Reserve want to raise interest rates at some point in the future. And although there is no hurry, the central bank is putting together its strategy despite some significant differences of opinion inside the institution.

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Fed Chairman Ben Bernanke, fresh from a controversial, but still valid confirmation is about to set on a difficult campaign, that of taking away the proverbial punch bowl of low interest rates from the markets and the economy. According to The Wall Street Journal, Mr. Bernanke will be using a new tool, "an interest rate the Fed pays banks on money they leave on reserve at the central bank. Known as "interest on excess reserves," this rate is now 0.25%."

The way this new device, which Congress gave Mr. Bernanke in 2008 works, is this: "When the Fed is ready to tap the brakes, it plans to raise the rate paid on excess reserves, according to Fed officials in interviews and recent speeches.

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S & P 500 Fails At Key Technical Point
The S & P 500 bounced back on 2-5 after hitting 1044, just above the key 1043 support level we've been talking about here for a couple of weeks.

So the key here is to see what the market will do now that the market seems to have tested support on an intraday basis.

The S & P remained below its 20 and 50 day moving averages, and may retest of the 1043 support area.

A break below 1043 could take the index to the 1010 or so area, where its 200-day moving average is at the moment. A bounce back above 1100 could lead to higher prices.

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