NEW YORK (TheStreet) -- No one envies the Federal Reserve right now.

"The Fed is caught between a rock and a hard place," said Anthony Chan, chief economist at JPMorgan Chase (JPM) - Get Report . "The economy is doing very well, but on the price front, things are a little bit soggy."

Personal consumption expenditures, the Fed's favorite inflation gauge, rose 1.3% over the past year in August, on a core basis, which excludes food and energy prices, according to report from the Commerce Department on Monday. While that's up from 1.2% in July, it's still a far cry from the central bank's 2% annual inflation target.

"But that increase over the month gives the Fed some wherewithal to say that they could be reasonably confident that they're moving towards that 2% target," Chan added. "Given that monetary policy has these long and variable lags, they can't wait until they hit that target before [raising interest rates]."

 If the Fed were to hold off on making its initial rate hike until inflation met its target, the markets could be looking at a liftoff several years away.

"Fed Chair Janet Yellen herself indicated that it would be probably take two to three years to reach that price mandate," Chan added.

Chan expects a a liftoff announcement when the Fed meets in December.

Investors are now only pricing in a 39% probability of a December rate hike, compared the 57% likelihood they had factored in before the Fed's September meeting. Expectations have slumped as volatility across stocks heats up and China's economic woes fan fears of a global recession.

"The Fed is not going to be able to wait with unemployment rates coming down," Chan said. "In fact, it's moving towards that 4% handle in the not too distant future," he added

The unemployment rate currently stands at 5.1%. The Bureau of Labor Statistics will release the September labor report on Friday. Chan expects nonfarm payrolls to rise some 225,000, eclipsing the 173,000 jobs created in August.