The Fed is undoubtedly a major factor in market movement--especially when it comes to rates.  At first glance, the key consideration is their collective stance on future rate hikes.  But given the recent comments from multiple Fed speakers, we're increasingly going to need to scrutinize comments about the Fed's balance sheet.

The balance sheet can be thought of like the Fed's stash of bonds.  From there, think of bonds like loans the Fed has invested in.  In that sense, the Fed is a mortgage lender, both to the US government and to actual mortgage borrowers (because they've bought plenty of MBS).  

As a big old mortgage lender, the Fed has a choice to grow, maintain, or shrink its book of business by deciding what it will do with the cash it receives when its borrowers pay off their loans. since the end of 2017, they've been pocketing the cash and letting their book of business shrink.  But now they're talking about stopping the shrinkage.  In other words, when their borrowers pay off their loans, the Fed may soon begin loaning that money out again. 

When the Fed is "loaning out money," it equates to massive bond buying.  This is one of the key reasons that the bond market has been able to hold ground near long-term lows, even as the initial reasons for the Nov/Dec rally (massive stock losses and other fiscal/economic uncertainties) have begun to subside. 

Fed Chair Powell only mentioned the balance sheet in passing in his opening remarks, but if pressed in today's Q&A with the senate, he may talk more about what the balance sheet plans could look like.  And that could be good enough to give bonds an early idea of which side of the consolidation range looks easier to break.