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"This is the dark side of transparency. People talk and the market thinks the Fed is going to tell us, that the Fed is all-knowing and clear," said Deutsche Bank's chief U.S. economist, Joseph LaVorgna. "And what we're finding is transparency doesn't make the market any more comfortable or confident in what the Fed is going to do. ... The Fed has wrong-footed the market consistently."

"All the FOMC members seem to be swinging back and forth in their sentiment, probably reflecting market conditions," said Mark Zandi, chief economist at Moody's Analytics. "Bottom line the economy is strong and it's rapidly approaching full employment, and inflation is much more likely to be heading north than south."

But Monday's economic data raised questions about the strength of the economy and whether it can endure rate hikes. Economists trimmed first-quarter GDP forecasts after a downward revision to January's consumption data and a wider trade gap. The median first-quarter growth tracking estimate was sliced by a sharp half percent to 0.9 percent, according to the CNBC/Moody's Analytics rapid update of economists' estimates.

While some Fed watchers expect Yellen to re-emphasize that April will be a "live meeting," meaning the central bank could raise rates, the market is placing low odds on it actually moving. Zandi said a key will be whether Yellen starts to discuss what would happen if the Fed does not start moving to normalcy. That would not mean the Fed would be ready to raise rates in April, but would signal that it intends to hike soon and keep hiking, he said.

Diane Swonk, founder and CEO of DS Economics., however, said there is more labor slack than meets the eye, and that's clear in a reluctant consumer. "I think she'll reaffirm her concern about wages and that growth is tepid. She's argued there's still a slack in the labor market and she's been proven right on that," Swonk said. "It's not a 4.9 percent unemployment rate economy."

Wells Fargo said “Recent market volatility and data from the factory sector raise the question: Is the U.S. economy headed for a recession? Based on our preferred model, the chance of recession is about 25 percent over the next six months.”

The Probit model Wells Fargo use to predict the chances of a recession estimates (using a handful of predictors) the probability of a recession during the next six months. The model utilizes the Leading Economic Index, the S&P 500 index and the Chicago-PMI employment index as predictors.

Oil prices fell on Tuesday as concerns mount that a rally since January is fizzling out, while analysts forecast another rise to record levels for U.S. crude stockpiles.

U.S. oil CLc1 was down 30 cents at $39.09 a barrel at 0553 GMT, after finishing down 7 cents at$39.39, the previous session.

Brent LCOc1 fell 35 cents to $39.92. On Monday it settled down 17 cents at $40.27 a barrel.

U.S. commercial crude oil stockpiles were expected to have reached record highs for a seventh straight week, while refined product inventories likely fell, a preliminary Reuters survey showed late on Monday. API

Reference: Reuters, CNBC, Wells Fargo