Fed rate hike: December more likely than October

One rate increase is expected this year, however the outlook for a September hike has failed to materialize and we now have to decide which meeting is more likely. It is believed that the odds favor the December gathering rather than October. The key factor that held the Fed back today is China, or specifically the possibility of a more abrupt slowdown in China which could then spill over to the global economy and financial markets. The Fed wants to see this question "revolved to some extent" before it raises rates. Unfortunately, it is unlikely to be resolved over the next eight weeks which makes an October rate hike unlikely. 

Moreover, the potential split within the FOMC core also raises the hurdle for the October meeting. Yellen will want this individual in the consensus and this will probably require a good string of positive data. Another potential issue facing the Fed is the small, but non-negligible risk of a government shutdown and another debt ceiling showdown. 

"Our scenario is reminiscent of 2013 when the "taper tantrum" spooked the Fed in September, a government shutdown spooked the Committee in October, and the fog finally lifted by December when the taper was finally announced", notes Barclays.