(Read more: Dow logs its best week since January as traders brace for Fed)
Traders believe much of the market moves around this first step in unwinding policy may have already taken place, but there is still concern the actual news could bring a volatile reaction if it doesn't go just right.
"Treasury yields probably went too high on QE 'tapering' talk and will come back down a little bit. I feel like Treasury yields were going up one way or the other. I think stocks could get over it," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi.
"It's all in our minds. It's not liquidity that's buying stocks. It's just a kind of a feel-good for stocks … that the Fed's on the case and doing something. It should not be fueling anything. It did do something originally when stocks were weak and people were starting to look forward to the QE announcements, but I don't think it's going to have the same impact when they pull it away," said Rupkey.
The Fed launched the latest round of quantitative easing in response to worries about the "fiscal cliff," when tax increases and spending cuts were expected to kick in at the end of 2012, and as Europe's sovereign debt crisis flared. While those crises have passed, traders are watching talks in Congress on a budget resolution and the debt ceiling as a new source of potential crisis later this month or next.
While the Fed meeting in the week ahead tops the list, Congressional budget maneuvering and any developments on Syria will also get attention. The United Nations is expected to receive a report Monday which should show if Syria used chemical weapons on its citizens.
One uncertainty was removed about the Fed this weekend: former Treasury Secretary Larry Summers will not be replacing Fed Chairman Ben Bernanke. In a surprise announcement, Summers withdrew his name from the running, and traders now assume the successor will be Vice Chair Janet Yellen. That has sparked a rally in stocks and Treasurys. Summers was seen as the favorite of President Obama, but he was expected to face a tough confirmation process.
(Read more: Will Syria keep Larry Summers out of the Fed?)
If the Fed news Wednesday triggers a move up in rates, or the Fed is not extremely dovish in its comments, stocks could feel some pain. Some economists expect the Fed to reduce Treasury purchases but continue to buy $40 billion in mortgage securities, in an effort to tighten mortgage spreads. Others expect to see mortgage purchases trimmed as well.
"The (stock) market is trading as if Goldilocks is in charge, and the bears may be headed home soon," said Art Cashin, director of floor operations at UBS. "What's priced in is a taper and $10 billion. If it turns out to be mortgages that are reduced, that's not priced in….That's a surprise. Any more than $10 billion is a surprise and volatility can pop back up."
The Dow in the past week was up 3 percent, to 15,376, its second best week of the year. The S&P 500 was up 2 percent at 1687, its best week since July, and the Nasdaq was up 1.7 percent at 3722, despite a 6-percent decline in Apple. The 10-year Treasury was yielding 2.89 percent late Friday, and traders are watching whether it will hit the psychological 3-percent level in the coming week.
Peter Boockvar, chief market analyst at the Lindsay Group said the success of the Treasury's 10-year and 30-year bond auctions this past week shows the bond market has priced in the tapering, but he does not see the same in the stock market.
"I think the stock market is still too nonchalant about this rise in interest rates. We've already seen an immediate reaction to the rise in rates. Everything's not better in the economy," said Boockvar. "I don't agree with the stock market here. The key for next Wednesday is not the $10 to $15 billion. It's how they circle around that with their language. The only weapon the Fed has left in controlling rates is how they jawbone short-term rates."
"They can only rely on verbal, short-term rate jawboning. The market's forced them into that situation. The bond market took control of the long end, and the Fed has gone to plan 'B,'" he said.
Jawboning versus QE
Bernanke is expected to take extra care in communicating the Fed's message Wednesday, keeping in mind it will be for his successor to implement. Besides the Fed statement, the Fed will release new economic and rate forecasts, and Bernanke will hold a media briefing.
Nathan Sheets, global head of international economics at Citigroup, expects a small taper of $10 to $15 billion, and he expects the Fed to transition away from taking policy actions to pressing its forward guidance.
"It will be accompanied by very dovish rhetoric and communication by Bernanke. I think he will say we're slowing the pace of securities purchases but he'll also make it clear it's not a one way street so if the economy slows, they would have the possibility of raising it," Sheets said.