Wednesday could be the end of an era for Fed testimony

Yellen's September Surprise
Yellen's September surprise   

Fed Chair Janet Yellen's semiannual congressional testimony this week could be the final hearing of its type in a zero-rate environment.

From the market's perspective, every word of Yellen's testimony on the economy and policy will be important since it's unclear exactly when the Fed will start raising interest rates—but it is expected to be before she testifies on the economy again next winter.

The last two meetings scheduled for this year with news conferences afterward are in September and December. Yellen's speech is expected to be released at 8:30 a.m. ET, and her testimony begins before the House Financial Services Committee at 10 a.m.

Janet Yellen
Kevin Lamarque | Reuters
Janet Yellen

It also may be a hearing full of drama as congressional Republicans, led by House Financial Services Committee Chairman Jeb Hensarling, R-Texas, take issue with the Fed's failure to comply with a committee subpoena on the probe into the possible leak of confidential information from its September 2012 meeting.

"My guess is Hensarling will hit her hard before she speaks. Then she'll give a speech about the economy, and then there's Q and A, and the fireworks begin," said Daniel Clifton, head of policy research at Strategas.

"I think she's very good on the stump. I think the best she could hope for is she will have a very grounded explanation of why she is not responding to the congressional subpoena," said Clifton. "They have deferred that since this is under review at the Department of Justice, they don't need to comply."

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Fed watchers expect a replay of last Friday's speech, when Yellen said she expects the central bank to raise rates by the end of the year, if the data is strong enough. But some information has been spotty, with a June jobs report that disappointed and very weak retail sales, actually showing a decline last month of 0.3 percent, when reported Tuesday.

"The Fed looks through monthly reports, and thinks in quarters, not months. It's possible the Fed puts this in context and looks at the relatively strong pace of consumer spending this quarter," said Tony Crescenzi, executive vice president and portfolio manager at Pimco.

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Traders had been watching Yellen last Friday to see how much the Fed could be influenced by international developments in Greece and China. But in her remarks Friday, she put very little emphasis on those influences and analysts expect the same this week.

Crescenzi said Yellen has had little market impact during the congressional hearings on the economy, and that has to do with the Fed's move to be more transparent. "The point is the minutes are now released every three weeks, and the Fed holds press conferences. These hearings used to be a source of volatility. They still are ... just much less," said Crescenzi.

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Besides Yellen, there is PPI producer price data and the Empire State survey, both at 8:30 a.m. Industrial production is at 9:15 a.m., and the Fed's beige book on the economy is at 2 p.m.

On the international front, the Greek parliament votes on reforms related to its bailout deal with euro zone leaders. The parliaments in other euro zone countries will then vote on the measures.

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CNBC's Delivering Alpha conference takes place all day in New York, with major speakers like activist investor Carl Icahn and Doubleline's Jeff Gundlach.

Earnings are expected before the bell from Bank of America, BlackRock, US Bancorp, Delta Air Lines and PNC Financial.

Intel, Netflix, Kinder Morgan and Universal Forest Products report after the close.

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