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There are risks for markets and Yellen at Jackson Hole

The risk to markets Friday is that Fed Chair Janet Yellen simply sounds more ready than markets expect to raise rates for the second time in 10 years.

That would trigger a sell-off in stocks, snap Treasury yields out of their slumber, pressure gold and pound on the dollar.

But many strategists and economists say more likely is that she will sound dovish, and the reason may be that she will choose to address a more wonky academic question about long-term Fed policy rather than talk about what the markets want to hear.

At the same time, the Fed's mixed messages, internal conflicts and pondering of longer-term issues have confused markets, and if she doesn't sound more confident on the economy, that may also create a backlash in the markets. The Fed has said it could raise rates twice this year, but the market barely expects one hike, at its December meeting.

"She's going to say what they've said before. I think the Fed's on track to hike this year, no real message on exactly when. Definitely, the market will be looking for things. I can't imagine her specifying a meeting, so she's going to give a boiler plate Fed statement. The more interesting thing will be the discussion on the sidelines among other members. Does the FOMC sound hawkish or not? Right now, you look at the Fed and there's a huge range of views there. They're grappling with the question of how well the economy can handle hikes and do they really want to hold the 2 percent [inflation] target now," said Ethan Harris, Bank of America Merrill Lynch co-head of global economics research.

The speech at Jackson Hole is perhaps one of the more widely anticipated chairman speeches outside of the financial crisis for the Kansas City Fed's annual symposium. It comes at a difficult time for the central bank, a time when market participants question the credibility of the Fed and doubt that global central bankers have any more fire power to fix the global economy. It's also a tricky time for the Fed, which could also easily find itself a political football during a contentious election year.

The topic of the conference is "Designing resilient monetary policy frameworks for the future" and Yellen's specific topic is, "The Federal Reserve's monetary policy toolkit." The Fed chair is expected to walk carefully between a dialogue about the Fed's policy tools and the current economic environment without tilting toward any current policy discussion. Yellen's speech will not be televised, nor is she expected to take questions following it.

Stocks Thursday were lower, with the S&P 500 down 2 points to 2,172. The dollar was lower against a basket of currencies, and Treasury yields rose across the curve, most prominently at the lower end. The two-year was at 0.78 percent, and it is the most reflective of Fed rate hike expectations.

"The markets are catching their breath. It's been one heck of a post-Brexit few months. With Yellen...