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The market has a bigger question about the Fed

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Trading Nation: Bad ISM, so what?

While the timing of the first Federal Reserve rate hike in years has long been one of the market's most pressing questions, investors appear to have moved on to a more important query: How quickly will the Federal Reserve raise the federal funds rate once it has started the hiking process?

While the federal funds rate is currently about as low as it could go, the committee has collectively stated an intention to raise the benchmark's target up to 3.5 percent in the longer run.

The big unknown is when that long run will converge with current experience.

According to Larry McDonald of Societe Generale, the recent drop in bond yields can be explained by the inclination that "the market got ahead of itself in terms of the rate hike outlook over the next 12 months," as some recent economic data, such as Tuesday's , have disappointed.

But unlike in recent months, bad data have not had a big effect on short-term bonds, because a December hike is still considered to be close to a lock. CME Group's Fed Watch tool places the odds of a hike announcement on Dec.16 at 75 percent.

Similarly, good news, such as a strong jobs number on Friday, could cause investors to pull up expectations of future rate increases. Indeed, a better-than-expected ADP report released Wednesday makes an impressive nonfarm payrolls report on Friday appear more likely.

Read MorePrivate payrolls up 217K in November vs 190K est: ADP

"While consensus expects a rate hike, another robust payroll employment report at the end of this week may cause some to revisit the idea of the Fed following a 'measured' pace, which could cause a bout of profit-taking ahead of the FOMC meeting" in the stock market, Canaccord Genuity director of portfolio strategy Tony Dwyer wrote in a Wednesday morning note.

The bullish Dwyer added that "we would look to be buyers into any weakness."

Wednesday on CNBC, Deutsche Bank Securities chief economist Peter Hooper said that based on recent data, the Fed will "be revising down a bit their expectations for rate increases next year."

Read More Why the Fed may revise down pace of 2016 rate hikes

The latest clue about the Fed's thinking should come shortly after noon ET Wednesday, when Fed chair Janet Yellen delivers a speech to the Economic Club at Washington. She testifies before Congress on Thursday.