Taper baked into the cake, yet speed may be real issue

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Most of the trading community believes the Federal Reserve will begin its tapering program today. It's remarkable how consistent the consensus is.

Almost everyone expects a $10-$15 billion taper (Credit Suisse and RBS reportedly think it could be as high as $20 billion), with $10 billion in Treasuries, perhaps $5 billion in mortgage-backed securities.

The reasons most believe the taper starts today include the following reasons:

$15 billion taper 'baked in the cake': Expert

1) unemployment is gradually declining;

2) not tapering would indicate a more cautious outlook on the economy;

3) Fed chief Ben Bernanke wants to begin tapering while he is still chairman. Many believe this decision is not purely based on economics: Bernanke is looking to the future and his legacy, and he wants to be able to say he started tapering while it was on his watch. Why?

He has said that quantitative easing, or QE, would persist as long as the benefits outweigh the risks. Many on the Fed now believe the benefits of (very modest GDP growth, a lift in asset prices) have been outweighed by the cost (dislocations in bonds and emerging markets).

But many believe that assuming the taper is $10-$15 billion, it is built into the market. No tapering would move the markets to the upside, and a $20 billion taper would likely send markets reeling. Given this, the size of the taper may not be the main driver for the markets, particularly for interest rates.

What would move rates? Several things...the Fed could:

1) change its forward guidance; they could, for example, lower the unemployment rate threshold for the first Fed funds hike from 6.5 percent to, say 6 percent;

2) change the way they have been communicating the end of the tapering process, from mid-2014 to some other date, and;

3) indicate that the current level of purchases may be adequate for a longer period, which would remove expectations for more tapering during its next meeting, on October 29-30.

Another market-moving event could be the 2016 forecasts, which will be introduced today. That will also be used to emphasize the message that actual increases in the Fed funds rate, once it begins, will be very gradual, thus emphasizing that "tapering is not tightening."

Bernanke has to convince the bond market the first rate hike is mid-2015, and must hint at the pace of the taper.

By CNBC's Bob Pisani