Now that there is a new Treasury Secretary in place, a revised plan for the financial bailout is expected and that could be a factor influencing markets in the next couple of days.
Timothy Geithner, former New York Fed President, was sworn in as Treasury Secretary Monday night, after winning approval from a Senate divided over issues with his personal income taxes. He was sworn in shortly after by President Barack Obama.
Geithner and the Obama Administration are expected to quickly redefine the Troubled Asset Relief Program (TARP) and the way the $350 billion in remaining funds will be distributed. The Obama Administration has said the money would be used to help consumers, not just inject capital into ailing financial institutions like the first batch of funding.
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Speculation also centers on the creation of a "bad bank" that would be created from the toxic assets sitting on bank balance sheets.
"The debate is pretty heated on it on whether to do the bad bank or not," said Diane Swonk, chief economist at Mesirow Financial. "The real concern is what kind of shenanigans are going to come through with the bad bank loans. I understand the concerns. I also have a hard time seeing how they can move forward without moving the bad stuff off the balance sheets."
Robert Harrington, head of equities trading at UBS, said investors have been waiting for clarity on the TARP and rules for financial firms. "You need some certainty one way or another. You need to see what the rules are. People are confused about the rules," he said.
The markets will also focus on the progress of the fiscal stimulus proposal. President Obama visits Capital Hill Tuesday to discuss the stimulus plan, in the face of Republican opposition. The $825 billion package comes before the House of Representative on Wednesday.
On Tuesday, S&P/Case-Shiller home price data is reported at 9 a.m., and consumer confidence is reported at 10 a.m. The Fed also begins its two-day meeting. Swonk said she hopes the Fed clarifies some of its programs, including what it intends with Treasurys and its plan to buy auto, credit card and student loan debt.
Harrington agrees and says that's what the market is waiting for. "I think the big thing with the Fed is what they are thinking on the Treasurys. The question is will they go in to buy the long-dated Treasurys to keep rates where they want them," said Harrington.
The New York Fed, meanwhile, is expected to name its replacement for Geithner Tuesday. CNBC's Steve Liesman reports that William Dudley is the likely choice. Dudley was chief economist at Goldman Sachs before joining the New York Fed in 2007 as head of markets.