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No mumbling, no stumbling and only an appropriately injected amount of plain English hedging was most everyone's take on Ben Bernanke's initial public appearance as the new Federal Reserve chairman. The market liked what it saw and heard.

Bernanke said nothing particularly new other than to suggest the economy might surprise on the upside, which, of course, kept alive worries that interest rates might head higher than anyone might like. Nonetheless, stocks headed higher the two trading sessions after Bernanke's initial testimony to a House committee.

Bernanke's comment about surprising economic strength was prescient. Housing starts reported last week vaulted 14.5 percent higher. The Philadelphia Fed Index reading for January was nearly four times higher than the lackluster level posted in December.

Although revisions to the fourth-quarter Gross Domestic Product are likely to show that the economy did better than the paltry 1.1 percent estimate published a month ago, economic growth certainly was much lower than prior quarters. First-quarter GDP growth, however, looks like a homerun. Many estimates assumed that first-quarter GDP would rebound, but recently GDP growth rates pushing toward 5 percent or more have become common.

But the economy can't hit homeruns every quarter. It's a good thing it does not, or else an already hawkish Fed might lean even more toward higher rates. Thankfully, it appears that economic singles and doubles are on tap later this year.

Federal funds rate futures last week put a lock on another quarter-point interest rate hike at the next meeting of the Federal Open Market Committee and suggested a high probability of another boost in May. Nonetheless, the Dow Jones industrial average and S&P 500 index set new recovery highs last week.

The market's sanguine view of future rate hikes stems from the present willingness to look toward the post-rate-hike environment -- a willingness some people might characterize as an ignorance-is-bliss approach. It's not.

Market valuations have been restrained by nearly two years of rising rates. As a result, the market's discounting mechanism dragged earnings multiples lower than where current rates suggest they should be. Slower economic growth that produces commensurately lower earnings growth still could result in higher stocks prices once the market is convinced that an end to the rate hikes is in sight.

Seeing that end, however, requires looking at least to mid-year. Normally, this falls well into a time frame the market can accept, but after suffering through a Chinese water-torture-style rate hike process, there will be times when last week's rate patience will falter. The name for those times will be buying opportunities.

Coming from less than 1 percent at mid-year 2004, a 400 percent rise in rates by this June should be enough to keep inflation expectations in check without choking the economy.

Bernanke, as expected, agreed with the Fed's interest rate policy committee's expectation of real GDP growth in the neighborhood of 3.5 percent this year and a little slower in 2007. This is roughly the Fed's estimate of U.S. potential growth. These forecasts are consistent with the expectation that unemployment will remain in a range of 4.75 percent to 5 percent in both years.

Perhaps this is not a Goldilocks environment, but it is an environment in which individual stocks can prosper and the entire market can work higher gradually.

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