The U.S. Federal Reserve's decision not to raise interest rates was most likely based on the latest financial market volatility and below-target inflation numbers, BBVA Compass economists say in their latest report.  

"Based on the Fed's statement, the latest spillover from China's market crumble has clearly spooked some among the committee," writes BBVA Compass Senior Economist Kim Chase. "Fed members were also likely considering the appreciation of the U.S. dollar and the possibility that higher rates could intensify the dollar's strength, ultimately leading to further downward pressure on inflation."

While there were a variety of arguments in favor of a rate hike — such as the 5.1 percent unemployment rate, the lowest since May 2008 — recent shifts by a few Federal Open Market Committee members about the appropriate timing for a monetary policy change gave clues that dovish views had begun to dominate the committee, the report notes.

The FOMC could still raise interest rates in its December meeting, and we will likely have a better understanding of what the members are looking for in the minutes from Thursday's meeting, writes Chase, which are expected to be released on October 8.

"For now, we can assume that for the Fed to push toward liftoff, inflation needs to start picking up a bit more, in addition to stronger vibes from the global economy," said Chase.

Led by BBVA Compass Chief Economist Nathaniel Karp, the bank's research team analyzes the U.S. economy and Federal Reserve monetary policy. For its analyses, the economists create models and forecasts for growth, inflation, monetary policy and industries. The economic research team also follows a variety of issues that affect the Sunbelt states where BBVA Compass operates.