Stocks Start Week in Reverse

Meanwhile, Janet Yellen, head of the San Francisco Fed, said that since the October central bank meeting, "financial conditions have deteriorated, and we have seen some unexpected softening in the economic data." She added, "On the inflation front, I continue to expect core consumer prices to rise at a pace that is broadly consistent with price stability, although there are some notable upside risks that bear careful watching and consideration."

Last week, remarks from several Fed officials, including chairman Ben Bernanke, bolstered hopes of a rate cut when the central bank next meets on Dec. 11, helping stocks notch their best week in months. The Dow added 3%, the S&P 500 gained 2.7%, and the Nasdaq finished higher by 2.4%.

Even though Rosengren's comments could be interpreted as friendly to those wanting to see another reduction, his blunt assessment of growth prospects was troubling.

On Friday, the next data point for the Fed will arrive when the government posts the November nonfarm payrolls data. It is expected that the U.S. economy added 70,000 workers last month, and any deviation will likely help determine the Fed's next step when the Federal Open Market Committee convenes on Dec. 11.

"Today showed that we're in a wait-and-see mode, at least until the jobs number," said Paul Nolte, director of investments with Hinsdale Associates. "Investors are starting to look at the employment number in terms of what the Fed does next. It's a hard number to handicap, and judging by what we're seeing in equities and bonds, investors fear the number may be weaker than expected."