There is no question that economic reports are coming in above expectations lately. Even after taking into account the special factors in the employment report, the figures are still showing that the weakness in the labor market probably bottomed out and improvement is underway.

Alan Greenspan's testimony before the Senate Banking Committee was only slightly more upbeat that his testimony to the House in the previous week. He seemed more certain that the recovery was underway. But Greenspan, along with other Fed officials on the speech tour, all noted that the risk of economic weakness still remains. Many cited the fact that capital spending is not recovering to the same extent that the consumer sector is improving these days.

Market players, particularly bond investors, are concerned that the Fed will soon tighten credit conditions and raise the federal funds rate target. In fact, most economists don't expect a rate hike until late spring. The Fed could very well stand pat for a few months. Several economists, however, are suggesting that the Fed may go back to a neutral bias at the next meeting.