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The big Fed decision plus economic data: Here’s what will drive the market on Wednesday

The Dow Jones industrial average, S&P 500 and Russell 2000 all closed Tuesday at record highs; the tech-heavy Nasdaq composite broke its two-day losing streak. As investors gear up for what is widely anticipated to be a Federal Reserve decision to hike its federal funds target rate, Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management, discussed three key market themes he is watching for on Wednesday.

1. The Fed's decision

The Federal Reserve is set to release its policy statement on Wednesday afternoon, and traders currently see an increase in the fed funds rate target as a lock. Schlossberg will be watching largely for the central bank's forward guidance now that the hike is widely considered priced into the market already.

"The market is going to focus on the dot plot and what Chairwoman Janet Yellen says, whether she is going to be dovish or hawkish with respect to the rest of the year," Schlossberg said Tuesday on CNBC's "Trading Nation."

If Yellen strikes a tone that indicates the Federal Open Market Committee is unlikely to raise rates again this year, the dollar, equities and bonds will all be impacted, Schlossberg said.

"The dollar will sell off very hard, bonds will be bought and equities will likely rally if there are no more rate hikes before 2017," he added.

An increase in the bank's short-term rate target would mark the second hike this year, and the fourth since the financial crisis.

2. Consumer inflation

The Bureau of Labor Statistics is scheduled to publish its monthly consumer price index on Wednesday before the opening bell, and Schlossberg will be watching for the measure of inflation.

"The Fed chairwoman, Janet Yellen, has been arguing that inflation is going to accelerate into the second half of this year. Tomorrow's data is going to be key in telling us whether that's really going to be the case or whether it's going to stay very much moribund," Schlossberg said.

The previous reading indicated inflation rose 0.2 percent month over month; it is expected that Wednesday's figure will show no change from the previous month.

3. Retail sales

The U.S. Census Bureau is set to publish its monthly retail sales data Wednesday before the bell, and economists are currently anticipating no month-over-month change for the measure of consumer spending. Schlossberg expects the figure to be "another dud."

The prior month's reading showed an increase of 0.4 percent.

"If retail sales again disappoint, it is going to make it very difficult for the Fed to argue that they're going to raise rates into the second half of the year," he said.

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