Fed will go out of its way to be dovish

The Fed Wednesday is expected to announce the end of the extraordinary easing program it first launched during the financial crisis, and markets could shrug it off as long as the Fed sounds dovish.

"Last month, there was this intense speculation about the Fed, and they delivered pretty much nothing. Now there's no speculation, and they're expected to deliver nothing," said John Briggs, head of cross-asset strategy at RBS.

Fed watchers say the Fed is unlikely to change the language in its statement about keeping rates low for a "considerable time." That was the focus of speculation last month, as was the idea that it could alter the language about labor market conditions.

Traders on the floor of the New York Stock Exchange.
Getty Images
Traders on the floor of the New York Stock Exchange.

"They don't want to send the wrong signal. They don't want to spook the markets. I think they'll be a little more bullish on the labor markets but they'll pivot to inflation. They'll be more worried about inflation," said Diane Swonk, chief economist at Mesirow Financial. "The markets seem pretty well prepared. The Fed has prepared them for tapering."

The focus now will be the Fed's still long path toward raising the fed funds rate from zero, where it's been since 2008. But the Fed is not likely to give any clues Wednesday about when that could start even though its forecasts show a possible midyear start date, versus the market's expectations the first hike will not be until the fourth quarter of next year.

While the Fed is expected to attempt to be market neutral in its 2 p.m. statement Wednesday, it may be that some of the reaction to the end of QE already was thrashed out when markets reacted to global growth concerns and Ebola earlier this month. The stock market has been rebounding, recovering nearly all its losses, and the Dow and S&P 500 are both less than 2 percent from all-time highs. The S&P lost 9.8 percent from mid-September to mid-October.

Read MoreQuiet market rally; Fed put alive

Bond yields in October carved out a new lower range, and expectations for yields have been reset to lower levels across Wall Street. Besides keeping short-term rates low, Fed watchers say it hopes to suppress longer term rates with the huge amount of bonds it holds on its more than $4.4 trillion balance sheet. The 10-year yield was at 2.29 percent Tuesday.

Stocks rallied Tuesday, shrugging off weaker durable goods orders, and focused instead on better earnings and a sharp jump in consumer confidence. The Dow was up 187 points to 17,005 and the S&P 500 was up 23 at 1,985, above its 50-day moving average. The small-cap Russell 2000, which has been lagging, jumped 2.9 percent.

Swonk also expects the Fed to remain open to another round of quantitative easing even though it wants the program to end. "They have to leave the door open to QE4, but they really don't want to do it. One of the things they made clear is they want the balance sheet steady. Is it the flow or the stock? They made clear they want to keep the balance sheet steady until they start raising rates," Swonk said. The Fed currently purchases assets to make up for those that mature, and that practice is expected to continue.

Janney Montgomery chief investment strategist Mark Luschini said the markets will be looking to see if the comments made by St. Louis Fed President James Bullard earlier this month are reflected in the statement. Bullard, at a time when markets were wavering, said the Fed could move away more slowly from QE if there was too much market turbulence, a comment that sparked a stock rally.

While unlikely, "that would be a boost to equity prices," Luschini said, adding that the end of QE should not move the market, as it is expected. "That's got to be well discounted at this point in time. If they dropped the 'considerable time,' that would be a big deal and that would be interpreted as hawkish," he said.

Read More Market pushes back Fed rate hike expectations: Survey

Fed watchers, surveyed by CNBC, saw a 1-in-6 chance the Fed would launch another QE program. A majority—64 percent—of the respondents also said there was a bigger risk the Fed would be more dovish than their forecasts.

Besides the Fed statement, investors will be watching another wave of earnings news. Deutsche Bank, Fiat Chrysler, Total, Statoil report head of the U.S. open, as do Hershey, Wellpoint Health, Ralph Lauren, Southern Co, Garmin, Weste Mangement, Booz Allen Hamilton, Carlyle Group, Eaton, Automatic Data and Praxair. Kraft Foods, Baidu, Visa, MetLife, F5 Networks, Dreamworks Animation, and Suncor report after the closing bell.

The Treasury auctions $35 billion in five-year notes at 1 p.m.