Janet Yellen is slated to testify before Congress this week, and her words could reveal a great deal about what the new Federal Reserve chair will plan to focus on in her tenure at the Fed. As the unemployment rate drops to 6.6 percent, even as job growth appears anemic, any hints about Yellen's priorities in setting policy will be critical for investors.
"It's a huge deal for the markets," said Jim Iuorio of TJM Institutional Services.
Yellen will testify before the House Financial Services Committee on Tuesday, and the Senate Banking Committee on Thursday. The Fed chair is mandated by law to report to Congress twice a year, and for the first time since 2006, that chair will be someone other than Ben Bernanke.
A lot is on the line. The Fed has begun to reduce quantitative easing, cutting the monthly asset-purchasing program by $10 billion at each of the past two meetings. Another $10 billion taper is expected to emerge from the Fed's March meeting.
Meanwhile, recent news about the economy has not been great. The January jobs report showed a meager 113,000 jobs created by the nonfarm payrolls metric, substantially fewer than expected. Yet on the unemployment side, the jobless rate fell to 6.6 percent, which is awfully close to the 6.5 percent at which the Fed has said it would reassess the federal funds rate target.
(Read more: Whiplash: S&P futures soar, then plunge, on jobs)
That said, the Fed noted in its January statement that despite the guidance it has provided, the central bank continues to anticipate "that it likely will be appropriate to maintain the current target range for federal funds well past the time the unemployment rate declines below 6-½ percent, especially if projected inflation continues to run below the Committee's 2 percent long-term goal." The Fed's next move, then, is quite discretionary and perhaps a bit murky.
"They've got 1.1 percent PCE inflation, but the unemployment rate is falling. So those two numbers are on a disconnect," Newedge senior director Larry McDonald said on "Futures Now." Investors will "be looking for hints as to her overwhelming concerns. And I think she's going to start to tip her hand at a concentration on inflation outlook. That's extremely important in terms of what the market's going to be looking at."
If anything, Iuorio expects Yellen's testimony to be a boon to stocks.
"There's more of a possibility she does good things for the market than bad," Iuorio said. "I expect her to stick with the rhetoric they've been going with and go forward with the taper, and I think the market will be fine with it at this point in time. But there is the potential that she does show her true colors that she's a dove deep down. That could do good things for the market."
"I expect her to stay the course," Grisanti said.
Either way, investors will get somewhat of a sneak peak an hour and a half ahead of the first session on Tuesday. The text of the Fed's monetary policy report, which serves as Yellen's prepared testimony, is slated to be released at 8:30 a.m. EST.