All but one of 55 economists surveyed by Bloomberg last week are convinced the Federal Reserve is too spooked to increase the benchmark interest rate at their Oct. 27-28 gathering. So what hurdles must the U.S. economy surmount over the next two months in order for policy makers to justify a rate hike at the following meeting in December?
Jeremy Lawson, chief economist at Standard Life Investments Ltd. in Edinburgh, has a checklist in mind:
1. No further market volatility
China's surprise move in August to devalue the yuan sent markets reeling, leaving economists, investors and policy makers to weigh whether the volatility was masking deeper concerns about a global growth slowdown.
While Fed Chair Janet Yellen noted in the press conference after the officials' September meeting that the fluctuations were worth monitoring closely, the minutes of that gathering released Oct. 8 revealed that "many" participants considered their likely impact on economic activity as "small or transitory."
Lawson said the Fed needs to remain confident that emerging-market growth "isn't about to step down in a big way."
"There's a lot of bearishness about emerging markets at the moment — I think they're in for a long structural adjustment," he said. "But it could well just be that markets have over- reacted to the fundamentals."
2. Two healthy payrolls reports
The Fed will have two more payrolls reports in hand before the December meeting, and while August and September jobs data were big disappointments, economists have been warning for some time that the pace of hiring will have to slow as the labor market moves toward full employment. Otherwise, the jobless rate would drop to levels that would be too low to sustain without spurring inflation.
"Trend labor force growth is very low, so you don't need payroll growth around 200,000 a month in order to bring the unemployment rate down over time," Lawson said. "It depends on how that employment is combined with growth."