While the market deals with the recent news that August housing starts hit a four-month high, most investors and analysts will remain focused on this afternoon's announcement from the Federal Reserve Bank.

The central bank will announce at 2:15 PM if it has decided to take any steps toward kick-starting economic growth. The main vehicle for such a kick in the market's pants is quantitative easing, which is purchasing government bonds in order to add more money to the system.

Friday morning, Federal Reserve Chairman Ben Bernanke stated that the central bank is ready to take further action if necessary. In prepared remarks, Bernanke told the assembled conference at Jackson, Wy., that the Fed would consider another large-scale purchase of securities should the economy "deteriorate significantly and signs of deflation were to flare."

Bernanke didn't give a specific plan of action, but his intimations suggest we could see another Fed purchase of securities, either government debt or mortgage securities. The Fed would do this to drive down rates on mortgages in hopes of prompting more Americans to spend money.

The New York Federal Reserve Bank announced Monday that the Empire State Manufacturing index dropped to 19.1 in May from 31.9 in April. This drop suggests that the pace of growth slowed during May, with new orders and shipments dropping (although the benchmarks managed to remain in positive territory).

Why are we interested in the Empire State Manufacturing Index? Many economists consider it an early indicator for what will happen with the May edition of the Institute for Supply Management's national manufacturing survey that is due out in two weeks.

In what could be determined as the understatement of the day, Federal Reserve Bank of Philadelphia President Charles Plosser told a group assembled at a banking forum in Prague that monetary policymakers must be vigilant to ensure rules-based policy decisions aren't skewed by poor data.

Plosser listed problems that are associated with measuring output gaps. An output gap is defined as the difference between the actual output of an economy and the output it could achieve at its most efficient. An output gap can be positive or negative (positive means actual output is more than full-capacity output and vice versa for negative). Plosser believes that output gaps and/or unemployment gaps could appear bigger than they are, which could lead to incorrect decisions as it comes to inflation. Plosser believes that "Explaining such decisions about the appropriate stance of monetary policy will be challenging, and central bankers will need to communicate with the public about these issues well in advance of their decisions to ensure that their policy actions are not misunderstood."

The Federal Reserve's next Beige Book report is scheduled to be released this week. This report is a compilation of anecdotal information on current economic conditions from each of the 12 Federal Reserve Bank districts, and it is released eight times a year. The data comes from interviews with business contacts, economists, market experts, and other sources. The previous report, released in January, showed some improvement in most districts and growth in consumer spending over the holiday period, though unemployment remained high. The December report showed modest improvement in eight of the districts.

Retailers were in the earnings spotlight last week and for the most part made a strong showing of it. Even as the earnings season winds down, some more retailers are scheduled to release quarterly results this week.

According to William Dudley, the president of the New York Federal Reserve Bank, the U.S. economy is becoming healthy. Dudley did caution that it is too early to say we are out of the woods.

The New York Fed president stated that the recovery is "looking sustainable," adding that the capital markets (with the exception of certain securitization markets) "are now generally open for business." Dudley added, "We currently expect that the economy will keep expanding, but at a somewhat slower growth rate than during the second half of 2009 as the temporary boost from the inventory cycle fades and the effects of the stimulus bill gradually weaken."

Things will be pretty quiet again on the earnings front during this holiday-shortened week, so not much chance of fireworks there.

The one report analysts surveyed by Thomson Reuters seem to have the highest hopes for is that from Apollo Group Inc. (NASDAQ: APOL), as people look to education to better position themselves to survive the economic slump. For its fiscal third quarter, during which a new co-CEO was named, the Phoenix, Ariz.-based educational services provider is expected to report a profit of $1.12 per share, which is 24.1% higher than a year ago. Revenue is expected to be 24.3% higher to $1.0 billion. The full-year forecast is currently for $3.97 per share (+28.5%) on sales of $3.9 billion (+24.4%). Earnings have topped expectations in the past four quarters, by as much as 13 cents per share. The long-term EPS growth forecast is 15.9%, which is double the industry average, and the forward PE ratio estimate is 15.0. The First Call consensus recommendation remains to buy APOL; InvestorPlace calls it a stock you can trust. At $68.50, shares are down 10.6% since the beginning of the year, but they peeked above the 100-day moving average at the end of this week for the first time since March.

After my rant yesterday, The Dow throws a 280 point hissy fit!, resulting from my unhappiness about the behavior of the market response to the rumor mill, I was sort of happy today to find investors coming back to their senses ... maybe.

So I followed with I guess the Dow hissy fit was short lived, and now am troubled even though the market has responded positively to what I thought was bargain hunting, but turns out might also be more rumors and speculation about a cut in the interest rate that was fed by the fed, by Bernanke himself ... make up your mind already. Bernanke Wants Help for Homeowners, or so the story goes. It does not say how exactly help will come.

The harshest comment I received to my second post, which is not far from my own thinking, was from Cullen:

• The Fed should keep rates where they are!
  
  Let the greedy speculators and the reckless mortgage lenders and the foolish or careless borrowers take their lumps! The free markets NEED to adjust. Those in the lending business NEED to return to SOUND lending practices. We consumers NEED to learn a lesson from this. Live within your means!