What traders expect from the Fed this week

With the labor market supposedly improving, will the Federal Reserve this week address how the "new economy" is changing the way the Fed evaluates the labor market?

Traders on the floor of the New York Stock Exchange.
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Traders on the floor of the New York Stock Exchange.

Recent speculation about what the Fed will do as a result of the improving U.S. macro data and the timing of possible rate increases along with Mideast geopolitical tensions caused a bit of a repricing in global markets two weeks ago only to see the markets rally back last week as the tensions subsided. Global turmoil alone is enough to cause financial instability – The Fed doesn't need to add to the angst and is well aware of its ability to create financial instability based on how investors interpret Fed Chair Janet Yellen's language, so we can expect her comments to be broad-based with little in terms of U.S. policy specifics.

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The topic is broad and offers the opportunity for a lot of discussion. In re-evaluating labor-market dynamics, she must address the changes in the labor market itself. She must discuss why there is still so much slack in the labor market, how much longer she expects the recovery to be, what has been the impact of Fed policy on the labor market and why it has NOT achieved the desired results after 5 years of stimulus. She can talk about the continued weakness in wages and what that really means for labor market dynamics and the future of the U.S. economy.

As in the past, the keynote address is distributed ahead of time, which could cause some market reaction early in the week – however, remember, the Jackson Hole conference is more about the global "thinkers" coming together talking broadly about economic policy vs. specific economic policy –so unless she is ready to unveil a new platform initiative like her predecessor, Ben Bernanke, did in the summer of 2010, do not expect any fireworks. As a result. I would not expect to see any major moves in the market based on the Jackson Hole conference this week.

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I fully expect investors/traders to focus on the economic reports beginning with Tuesday's CPI and housing starts report. On Wednesday, we will get the FOMC minutes from the July meeting. Once again, all eyes will be focused on any commentary relating to the timing of interest-rate increases. Friday brings existing-home sales and July leading economic indicators.

As we move into the final two weeks of the summer, I would not expect too much in terms of significant market moves – unless, of course, we get a new unforeseen Mideast/Russian conflict. But by all measures – the Mideast does seem to be moving in the right direction and Russia/Ukraine –well the jury is still out but the sense is that it is under control.

That being said, a move to test the upside would not out be out of the question.

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Commentary by Kenny Polcari, director of NYSE floor operations at O'Neil Securities. He is also a CNBC contributor, often appearing on "Power Lunch." Follow Kenny on Twitter @kennypolcari and visit him at kennypolcari.com.

Disclosure: The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities or its affiliates.