The 60 percent case reflects improving domestic economic conditions in the U.S., the Fed’s main focus and primary concern. Job creation is robust, wage pressures are gradually building, and the economy’s growth engines have bounced back from a disappointing start to the year.
The 40 percent case reflects the global context in which the U.S. economy and markets operate. This environment has been unusually fluid in recent weeks, and Fed officials are understandably hesitant to undertake any action that could add to the turmoil.
Almost every systemically important emerging economy is slowing, while Europe and Japan still struggle to develop growth potential. Financial volatility is on the rise. And at least two markets — oil and emerging-nation currencies — have been unhinged in a manner that causes volatility elsewhere.
In addition, as the major immediate concerns about economic and financial instability have shifted from Europe and the U.S. to the emerging world, markets have a lot less confidence in the ability of officials there to repress volatility. This has been accentuated by China’s unusually hesitant and inconsistent policy responses.