CNBC's Market Movers For 2011: Patti Domm On The Fed, Energy Prices, Housing And Jobs

The Fed Factor

Safety net or sugar high? The Fed's extraordinary easing policies have been credited with juicing the stock market, keeping bond yields low, and depressing the dollar. There has been much debate and analysis about the effectiveness of the program and, for better or worse, when it should end.

Fed purchases of $600 billion in Treasury securities are scheduled to stop in June. The Fed is also buying Treasurys with the proceeds from its expiring mortgages. But most important, the Fed is holding interest ratesnear zero, and the return to an actual interest rate is the big step, though not one expected until sometime in 2012.

The way the Fed steps back from QE will be key. The question is whether investor confidence in the economic recoveryis strong enough to accept and encourage the return to a more normal monetary policy, or are investors fearful of losing the hand that has been held out to markets since the financial crisis began.

Energy PricesOil prices are a wild card for the markets and threaten the economic recovery. Rising crude prices have pushed up energystocks, which in turn helped drive the stock market higher. High-priced oil, however, threatens to choke off stock market gains if crude climbs much above $100 for more than a brief time. Higher gasoline prices act as a brake on consumer spending, and if they rise too much, they damage the consumer psyche and that will also hurt stocks.

Jobs and Housing

Both are casualties of the great recession that are still causing pain, and they each need improvement in the other to recover. The low level of housing activity and the continuing weakness in prices has led some economists to see the possibility of a bottom, while others see another leg down. If the jobs market starts to improve, as many economists expect this year, housing may pick up too. The combination would go a long way to lifting confidence in the recovery and in the stock market.