A September Fed liftoff is still expected, but acknowledge that the recent international developments make it a close call. The September meeting is still awaited for a number of reasons.



For the majority of FOMC participants the inflation process is still primarily driven by domestic developments. They will be reassured by recent growth and employment statistics. Following the July FOMC meeting, Q1 GDP growth was revised from -0.2% to 0.6% and Q2, initially reported at 2.3% is on track to be revised to 3%.



This means that the FOMC's 2015 GDP growth projection will have to be revised from the June forecast of 1.9% (mid point) to around 2.25%. The unemployment rate has already fallen to 5.2% compared to the Fed's year-end forecast of 5.2-5.3%. Core PCE is also at the low-end of the FOMC's year-end forecast of 1.3%-1.4%.



"If not September, when? For the FOMC to push the lift-off into next year, there would have to be a significant downward adjustment in the growth outlook which is highly unlikely in our view. This means that a decision not to hike in September would leave only two possibilities, October or December", says Societe Generale.



The December meeting is not an attractive option in our view due to year-end related pressures on rates and the potential of another Q1 slowdown in activity. October is a possibility, but the lack of a scheduled press conference and planned forecast changes make it a less attractive option at the margin.