No Fed rate hike expected this week

With job growth slowing substantially in recent months, there's virtually no chance the Federal Reserve will raise interest rates for the first time in nearly a decade at a two-day meeting that begins Tuesday, economists say.

More drama surrounds this question: Can the Fed use its post-meeting statement to convince skeptical financial markets that a December rate hike is at least on the table?

The Fed held off on a rate increase last month, citing global economic troubles, financial market volatility and stubbornly low inflation. Yet 13 of 17 Fed policymakers still projected the central bank will raise its benchmark rate this year.

Since then, however, the Labor Department announced the second straight month of disappointing payroll gains in September and revised down its already modest total for August. Measures of consumer spending and factory activity have slumped. The government is expected to report this week that the economy grew less than 2% in the third quarter. And several Fed policymakers, including board members Daniel Tarullo and Lael Brainard, have indicated they're leaning against a rate increase this year.

Weak manufacturing data: Orders for durable goods drop 1.2% in Sept.

Markets are pricing in just a 33% chance that the Fed will act in December, based on fed fund futures contracts.

Yet economist Michael Feroli of JPMorgan Chase notes that U.S. stocks have rebounded and global economic news has improved recently. Although China's economy is slowing, the country's third-quarter growth beat estimates. Fed Chair Janet Yellen and New York Fed chief William Dudley are among key Fed policymakers who in recent weeks said they still expected to lift rates in 2015, depending on the strength of economic reports.

As a result, Feroli says, Yellen's goal this week will be neither to signal a December rate hike nor to take it off the table. After all, the Fed historically has been reluctant to raise rates if the move would blindside markets.

"We think the leadership will view the statement as a success if, subsequent to the meeting, strong data gets the market to price in December, and weak data leads the market to continue to price liftoff sometime next year," Feroli wrote to clients.

Goldman Sachs economist David Mericle agrees, saying the Fed's statement will likely continue to describe the economy as "expanding at a moderate pace" despite the recent signs of weakening. And despite the slowdown in job growth, Feroli says the Fed will likely say only that payroll gains have "moderated, and the unemployment rate remained steady." The 5.1% jobless rate is already near the Fed's long-run target.

Both Feroli and Mericle say the Fed is likely to add an upbeat note, acknowledging that broader measures of labor market health -- such as the number of part-time workers who prefer full-time jobs -- have continued to improve.

Consumer confidence retreats in October

Paul Davidson on Twitter: @PDavidsonusat.