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Fed trapped by market view that it's 'easing to infinity'

NY Fed's Bill Dudley on economy, 2nd half

Fed Chair Janet Yellen could clear the air next week, sounding more concrete on whether the central bank will squeeze in a rate hike or two this year, but more likely she won't.

Yellen is scheduled to speak next Friday in Jackson Hole, Wyoming, and for markets that has been the most important event on the calendar this month. It also comes after the debate in markets heated up about whether the Fed could actually raise rates in September, or will wait until the end of the year or even later.

"I think she's going to play her cards very close to the vest. I don't think she can signal a September hike," said Diane Swonk, CEO of DS Economics. Swonk said three inflation reports and the August employment report will be released after the Aug. 26 speech and before the Sept. 20 Fed meeting. "She's got to leave her options open."