by Calculated Risk on 10/28/2015 10:07:00 AM

From Merrill Lynch:

The October FOMC meeting is unlikely to deliver any major changes in policy or language ... At this stage, we continue to see a relatively flat distribution for the timing of liftoff. December is our modal forecast for the first rate hike, but there is a significant chance that it could be later — depending on the upcoming data flow.

Markets are expecting a more dovish assessment of the outlook from the Fed, and the FOMC statement is likely to acknowledge that the recent US data have been more mixed since the September meeting. The FOMC may mark down their assessment of growth from moderate to modest, and may note that the pace of improvement in the labor market has slowed. They also may note the significant drag from inventory reduction and a widening trade deficit. However, watch for the possibility that the FOMC suggests that much of the current weakness should be short-lived — that would be a hawkish signal relative to market expectations for the first rate hike no earlier than March 2016.
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The FOMC has tried to dissuade markets from expecting any explicit signals about upcoming policy changes, emphasizing data dependence. As such, we anticipate no meaningful changes to the policy guidance language. That should not be read as a sign the Fed will not hike in December; rather that they are keeping all options open. We still see a significant chance that the FOMC will hike this year ...