If there was any doubt beforehand, a key economic number Friday finally may have taken September off the table for an interest rate hike.
Consumer sentiment tumbled in September, with a reading of 85.7 in the latest University of Michigan monthly survey.
While that number often garners a fair mount of attention on Wall Street and can move the market, it takes on added importance because of recent comments from New York Federal Reserve President William Dudley.
The influential Federal Open Market Committee member said on Aug. 26 that the confidence survey would play an important role in his thinking when the panel meets next Wednesday and Thursday. That statement came during a press briefing at which he said the case for a September rate hike has become "less compelling" in recent days.
"That loss of confidence feeds back into the real economy through lower spending, and that's what the Fed is very concerned about," said Jeff Rosenberg, chief investment strategist for fixed income at BlackRock, the $4.7 trillion asset manager. "That concern ... that's registered in market expectations that the Fed is unlikely to raise rates. I think the weak data has certainly taken down those probabilities, along with the uptick in financial market uncertainty."
Indeed, while surveys of experts including economists and strategists indicate a belief the Fed will hike rates next week for the first time in more than nine years, futures trading shows just the opposite.
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The CME's FedWatch gauge now assigns just a 21 percent probability for a September move, down 24 percent from the day before and 45 percent a month ago. Traders believe December is the most likely date, assigning a 58 percent chance.
After a relatively placid seven months, markets turned violent in August as investors fretted that a slowdown in China would reverberate globally, and as anticipation built over the Fed's first rate hike since June 2006. Fed officials at one point had been teeing up March 2014 as a likely hike date, but that got pushed back repeatedly as economic data have been uneven and volatility has built up in financial markets.
Most Fed watchers believe an October hike is unlikely in part simply because there is no post-meeting news conference scheduled with Chair Janet Yellen. However, Yellen indicated back at the March meeting that a conference was not a prerequisite for a hike; one could be scheduled impromptu so she has the opportunity to explain the rationale behind the move.
Deutsche Bank is now among the few Wall Street firms to change its forecast from a September hike, and stands nearly alone in now predicting an October move.
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"We expect an October rate hike to be followed by two more 25 basis-point increases at next year's March 15-16 and June 14-15 FOMC meetings," Deutsche Bank's chief economist Joe LaVorgna and others said in a note to clients Thursday. "Then, the Fed could pause in order to assess the lagged impact of modestly tighter monetary policy on economic activity."
LaVorgna believes seven conditions would have to be met for an October hike: Market stability, a halt in U.S. dollar appreciation, steady economic growth, improvement in the inflation picture, a statement from Yellen next week that October is a "live" possibility, a Yellen press conference and, "most importantly, the financial markets have to be discounting a reasonably high probability of an interest rate hike."
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Elsewhere on Wall Street, Goldman Sachs believes a December hike is more likely, and Credit Suisse said Friday that September is now unlikely but October is a possibility.
"We are forecasting a December liftoff, although if markets stabilize in short order and the data continue to cooperate, the October meeting may prove to be a more compelling entry point," Credit Suisse Chief Economist James Sweeney and others said in a note.
