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It's the economy that matters now that the Fed is off the sidelines

Markets Thursday will give more than a glancing look at one of the last big batches of economic data this year, now that the Fed has signaled it could speed up interest rate hikes.

The Fed on Wednesday raised its short-term target rate by 25 basis points in its second rate hike in a year. The Fed also surprised markets with a forecast that showed it could raise rates three times next year, instead of two.

"I think we're moving into a healthier environment where the economic data matters. You have a Fed that is certainly watching global growth and watching inflation around the world," said Rick Rieder, CIO of global fixed income at BlackRock.

Data Thursday includes CPI inflation data, jobless claims, the Empire Fed survey and Philadelphia Fed survey, all at 8:30 a.m. ET. There is also Markit manufacturing PMI at 9:45 a.m., NAHB homebuilder sentiment at 10 a.m., and Treasury capital flow data, at 4 p.m.

Bond yields spiked Wednesday afternoon, the dollar soared and stocks sold off hard on the prospect of more rate hikes. The dollar index rose more than 1 percent and the euro fell to $1.05. The market will watch the greenback since a rising dollar can be a negative for corporate profits.

Market chatter Wednesday immediately jumped to the possibility that the Fed could raise rates even more than its forecast, once the tax plans and fiscal spending programs proposed by President-elect Donald Trump are instituted.

Rieder said the plans to cut corporate taxes could be a positive for the economy, and the business surveys are picking up. "I'm on the enthusiastic side. I think growth is going to be better than people think, and if you get that, the Fed will react to it," Rieder said.

The two-year Treasury yield, which is most sensitive to the Fed, rose to 1.27 percent Wednesday, its highest level in seven years. The 10-year jumped to 2.57 percent.

"I certainly think we could hit a 3 (percent 10-year yield) by the first quarter of the year," said Rieder. The 10-year was last at 3 percent in January 2014. He said the yield could reach 2.75 percent before the end of this year, but after the 10-year reaches 3 percent it may not have that much further to go.

Stocks were slammed Wednesday, and even the financial sector, which is helped by higher interest rates, sold off. The Dow fell 118 points, to 19,792, and the S&P 500 dropped 18 to 2,253.

"Going into this, there were so many questions about what could the Fed say that could be a road block to Dow 20,000. I guess the Fed was more hawkish than the market had wanted even though Janet Yellen at the press conference basically said we're data dependent, and we don't know what the future holds in terms of stimulus and tax cuts," said Quincy Krosby, market strategist at Prudential Financial. "She said the economy was resilient and she was much more positive than she has been. She used the word gradual a couple of times. The market was hoping she'd use that word more. This was one where the market in a sense was already moving toward a pullback."

Krosby said the market has history on its side, and next week could be a good one for stocks. "I think you're going to see buyers coming in on this dip," she said. Krosby said she expects to see buying interest in the financial names.

"Next week happens to be the sweet spot for the market in terms of performance. Statistically next week seems to be the week in which if you haven't caught up in your performance, if you're a hedge fund or portfolio manager, you're going to use that week to make that performance. There's nothing [Yellen] said that should have made this market nervous. I think the market was poised for a pullback. We saw the dollar move markedly higher, which isn't something you want, and yields are rising," said Krosby.