Investors will now try to second guess whether the Fed will move before the end of the year and volatility is expected to hit equity markets this September. The U.S. dollar ticked higher on Monday in anticipation and nonfarm payrolls this Friday will be seen as crucial. The market has now priced in a 33 percent chance of a hike in September, up from 18 percent before Yellen and her deputy Stanley Fischer spoke on Friday, according to CME Group's FedWatch tool.
O'Sullivan said that Fed officials have sounded close to tightening on several occasions in the past year and a half, only to back away because of weaker-than-expected data or some turmoil in financial markets. O'Sullivan and High Frequency Economics now expect tightening to be delayed until December.
"Tightening as soon as September 21 remains possible, but it would probably require stronger-than-expected data in the next couple of weeks. We don't see much chance of a move at the November 1-2 meeting; Fed officials will likely want to keep a low profile in the week before the presidential election," O'Sullivan said.
—CNBC's Patti Domm contributed to this article.