It was a sparse week for economic indicators in advance of a holiday weekend. That always makes markets skittish. In any case, the weekly indicators continue to show that economic activity is lackluster - particularly in the manufacturing sector. Housing activity moderated in April, but the overall pace remains strong.

The University of Michigan reported that consumer sentiment edged up in May relative to April, but the levels since the first of the year are not all that different. Consumer confidence isn't falling apart, but neither are consumers as optimistic as they were last year.

The Fed chairman spoke, indicating his belief that economic activity is still anemic and the risks for deterioration are high. He implied that he stood ready to ease further. Certainly, Fed officials will get a chance to see all the May data before their next meeting at the end of June. Market players will probably start factoring in a rate cut, but perhaps a smaller one of 25 basis points rather than 50.