Now that Fed Chair Janet Yellen has spoken, the market is more anxious than ever about this week's inflation data.
Federal Reserve officials have recently been saying the dip in inflation is probably transitory. Yellen, however, raised a red flag on inflation, both in prepared remarks and also during testimony before Congress on Wednesday.
"She took a very small step acknowledging it might not just be transitory factors. They're watching it carefully," said John Briggs, head of strategy at NatWest Markets.
This week's data releases include PPI, or producer level inflation, on Thursday, but the report markets care most about is the CPI, or consumer price index, which comes out on Friday morning. Yellen testifies again Thursday, before the Senate Banking Committee, and the markets will be listening for consistency on her inflation remarks as well as any clarity on interest rates or clues on when the Fed might start taking action to shrink its balance sheet.
Yellen's prepared remarks noted the Fed is cautious about inflation, and she repeated it at the hearing.
"Temporary factors appear to be at work. It's premature to reach the judgment that we're not on the path to 2 percent inflation over the next couple of years. As we indicate in our statement, it's something we're watching very closely, considering risks around the inflation outlook," Yellen said, during a question-and-answer session.