While the central bank was likely prepared to raise interest rates this month at the conclusion of the last FOMC meeting, deteriorating global economic conditions and market volatility will likely derail those plans.

Nor is the inflation picture particularly supportive at this juncture. Consequently, I anticipate the FOMC will choose to hold rates steady. But expect the FOMC statement and subsequent press conference with Fed Chair Janet Yellen to strongly indicate that policymakers still intend to raise rates this year.

Whether they will be able to carry out that intention, however, remains in doubt.

The core of this week’s debate will revolve around policymakers’ confidence that inflation will revert to its targeted 2 percent. On one side will be those arguing that economic activity remains sufficient to achieve further improvement in labor markets. Such improvement will soon drive wages higher, which in turn will propel inflation back to target. To ensure that inflation does not overshoot, the Fed’s unusual program of financial accommodation needs to be withdrawn. To achieve a slow pace of subsequent rates hikes, the Fed needs to start sooner rather than later.

In contrast, others will argue that price measures remain the best indicators of the level of “slack'” that remains in the economy. Both low wage growth and low inflation indicate that the economy is operating far from its full potential, validating the hypothesis that measures of underemployment are important metrics of labor market health. Thus there is little reason to expect that inflation will soon return to trend. Furthermore, given that inflation continues to move away from trend, there is certainly no imminent need for a rate hike.

Read the article “Why the Fed Is Likely to Stand Pat This Week” on bloomberg.com.