The Federal Reserve could rival the White House as a source of volatility in the week ahead.
Since he was elected, President Donald Trump has taken the driver's seat for markets, pushing the obsessive focus on the Fed aside, with his promises of big pro-growth fiscal policies impacting market expectations.
But the current back seat driver could grab the wheel for at least two days in the coming week, when Fed Chair Janet Yellen testifies before Senate and House committees on the economy and Fed policy.
"Certainly investors are paying close attention and given the fact the VIX is … at some crazy low number, it's possible we see a volatility pop," said Jack Ablin, CIO of BMO Private Bank. The VIX, the CBOE's volatility index, was at a low reading of 10 on Friday, indicating to some a high level of market complacency, as stocks leap to record highs.
"Just like last year, they [the Fed] started the year with a forecast where were going to have four rate hikes, and we got one. I think the same thing this year. Her rhetoric could be construed as hawkish but with very little action," said Ablin.
On Wall Street, traders are waiting to hear if Yellen signals that the Fed is on track to raise interest rates three times this year, as it forecasts, and the timing of when it might next move. Analysts also expect to hear pointed questions aimed at the Fed's own policies and what Yellen thinks about potential new tax policy, fiscal stimulus, banking deregulation and efforts to exert new supervision over the Fed itself.
Ablin expects Yellen to be circumspect, given the scrutiny of the Fed and unknowns about the shape and timing of Washington policy. "I actually think Trump and Yellen are on the same page. I think they want the same thing. 'Let the economy run hot and drag your feet raising rates.' I don't see a lot of controversy. The controversy could be around the independence of the Fed and [Sen.] Rand Paul wanting to audit the Fed," he said.