FOMC Meeting: Preparing for December in October

It is very unlikely that the FOMC will contemplate a hike at the upcoming gathering. More critically, officials will have to decide whether they still consider a December rate hike as likely and, if so, come up with a game plan to prepare the markets. If the Fed decides to stick with a potential December lift-off, it could signal this by removing the reference to international developments in its assessment of risks.

If it decides to move away from the December timeframe, it could insert a phrase that "the pace of job gains has moderated." The FOMC used similar language in April when it wanted to signal that a June hike was becoming unlikely. The problem with the former is that it would inevitably tighten financial conditions, reversing much of the recent improvement. 

The Fed's hands are effectively tied by the ultra-dovish rate expectations currently embedded in asset prices. If the FOMC still intends to hike in December, it will need a lot of help from the data. The scenario pegs the probability of a 2015 liftoff at only 40%.