U.S. likely to post weaker growth rate in Q3

The FOMC is unexpected to give a strong indication about future policy. In light of the Fed's professed data dependence and unwillingness to give formal forward guidance at this point-beyond simply saying that "some further improvement" in employment is needed and it must be "reasonably confident" in its outlook for inflation to gradually return to target. No changes are expected to the policy language in the October FOMC statement.

In fact, we expect the Committee is likely to leave in place the "some further improvement" language until the unemployment rate reaches the FOMC's median forecast for the longer-run employment rate, currently at 4.9%. If the Committee were to indicate at this meeting that they were satisfied with the cumulative labor market progress to date. 

"This will be a very strong signal that the FOMC were eying a December liftoff. The FOMC is likely to acknowledge that the pace of job creation has slowed and that 3Q GDP growth is likely to be weaker than in 2Q-perhaps a "modest" rather than "moderate" pace of activity", states BofAML. 

However, the FOMC could soften these downward revisions by noting that the labor market is still improving despite the slower growth in payrolls, and that domestic demand remains strong even as trade and inventories temporarily subtract from 3Q growth. Such language would help to keep December "live" without sending an unduly strong signal either way.