"I do think the market underestimates that a bit. For 10 years, global central banks have been easing," said Michael Arone, chief investment strategist at State Street Global Advisors.
That's important since the easy policies of the European Central Bank and Bank of Japan have helped keep U.S. interest rates low, particularly at the long end, as investors looked around the world and bought Treasurys for relative value and higher yields. That has had the effect of holding down rates that affect things like mortgages in the U.S.
"The market's thinking central banks aren't going to matter this year. I don't see that as realistic," said Peter Boockvar, chief market analyst at The Lindsey Group. "We're increasing the probability of rate hikes. The ECB is cutting [quantitative easing] QE this year, the Bank of England is going to end QE this year and possibly raise rates. You have the Bank of Japan getting tested every night in their yield curve control experiment. I think that central banks don't matter is unrealistic," he said.
That makes listening for Yellen's views and confidence level about the U.S. and global economies even more important, when she appears before the Senate Banking Committee at 10 a.m. Tuesday and the House Finance Committee Wednesday. Since the election, the Fed has taken a back seat to the market optimism around the pro-growth tax and stimulus policies of President Donald Trump.
That could change, if interest rates start to rise and the market perceives that they are moving too quickly. The Fed has forecast three rate hikes for this year, and economists are expecting more like two with the next hike in June. Arone said if global growth is improving, the markets could take the central bank actions in stride.
Yellen is appearing before the Republican-controlled Congress for the first time. She is expected to be asked about changes to banking regulation, the proposal to audit Federal Reserve policy moves and the Trump fiscal stimulus and tax reform proposals.
"There's been a lot of chatter about how she's going to put March back on the table," said Ian Lyngen, head of U.S. rate strategy at BMO Capital. "Of course, she's going to say every meeting is live. I think it's a matter of nuance; how much jawboning does she attempt to do; how adamantly does she stress that a March rate hike is a possibility, how emphatically is she going to tell us each meeting is in play?"
Lyngen said the Treasury market has been pricing in the possibility of a hawkish comment from Yellen. The 10-year yield rose to 2.43 percent Monday.
The Fed chair is also expected to be asked a lot of questions about the Fed itself, questions that could give clues to how Congress may deal with the Federal Reserve in coming months.