A few excerpts from a research piece by Goldman Sachs chief economist Jan Hatzius, weekly lunch partner of New York Fed president William Dudley
Q&A on Fed Liftoff
We still expect a rate hike at the December FOMC meeting. The leadership has signaled that such a move is likely if the economy and markets evolve broadly as expected, and our forecast is similar to theirs. However, we are only about 60% confident. Most of the uncertainty relates to the possibility that the economic and market environment—or in a broad sense, “the data”—will be worse than the FOMC’s (and our) expectations....The low market-implied probability of a December hike of only 30%-40% probably reflects a mixture of concerns about the data (which we find reasonable) and a belief among some market participants that the FOMC will find an “excuse” to stay on hold even if the economy does fine (which we find unreasonable). ...
Our own view is that it might make sense to start normalizing in December if we were perfectly confident in our baseline forecast for the economy. But uncertainty around that forecast still argues for waiting longer. The main reason is risk management.
(via Bill McBride)