FOMC Preview: Building a game plan for December

It is extremely unlikely that the FOMC will contemplate a rate 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. In either case, it is doubtful that the Committee would want to send a strong message at this point, but it could use the post-meeting statement to send subtle hints. There are two ways in which it could do so.

1. If the FOMC wants to move away from a December liftoff: 

• First, it could insert a phrase that "the pace of job gains moderated." The Committee used a similar phrase in April to signal that a June liftoff was becoming less likely.
• Second, it would probably keep the sentence that risks to the outlook are nearly balanced, but the Committee "is monitoring developments abroad." This would be an indication that overseas risks are still high in the Fed's view and the conditions for a hike (namely confidence that the 2% inflation objective would be met over the medium term) has not yet been met.

2. If the FOMC wants to reaffirm a December liftoff: 

• It would keep the economic assessment broadly unchanged and avoid references to the recent soft patch in the data.
•  It could remove the reference to "monitoring developments abroad" following the assessment that the risks are nearly balanced. This would be seen as a very hawkish message by market participants.