What is the Fed waiting for?

Overall, the Fed will conclude that the US economy remains over track once it is confirmed that the recent growth slowdown was largely due to an inventory correction and that the labour market continues to tighten. 

However, it is far from certain that this picture is going to show up in economic data as early as the next few months. Combined with the heightened risk of a political mess in Washington related to the 5 November deadline for raising the debt ceiling and the 11 December deadline to avoid a government shutdown, there is consequently a significant probability that the Fed's first rate hike could be postponed until early 2016.

The level of uncertainty about the timing of lift-off is obviously underscored by recent suggestions by Fed Governors Brainard and Tarullo that the first hike should be delayed until 2016, opposing the views expressed by Fed Chair Yellen and Vice Chair Fischer.

According to Nordea bank, for now, a Fed rate hike is however seen in December. This is based on the assumption that ahead of the 15-16 December FOMC meeting the following will be seen,
 

• Non-farm payrolls growth rebounds to at least around 175k in October and November (including potential revisions to August and September).
   
• Average hourly earnings increase by at least 0.3% per month on average in October and November (including potential revisions to prior data).
   
• The Q3 employment cost index, released 30 October, shows clear signs of acceleration in wage growth.
   
• An orderly political resolution of the two fiscal challenges in Washington, raising the debt ceiling and extending the funding of the government ahead of deadlines.
   
• Rate markets price in a probability of around 50% or more of a December rate hike.