Federal Reserve policy makers may take a pass on raising rates next week if they decide the market has already done the tightening for them. 

The recent stock market sell-off, an increase in corporate borrowing costs and the rise of the dollar have contributed to a tightening of financial conditions roughly equivalent to three 25 basis-point hikes in the central bank's benchmark federal funds rate, according to a Goldman Sachs Group Inc. report published late Thursday in New York.

The Goldman Sachs Financial Conditions Index — a measure that incorporates variables like stock prices, credit spreads, interest rates, and the exchange rate — rose to the highest level in five years at the end of August amid the most acute phase of the turmoil.

The market moves have led New York Fed President William C. Dudley and San Francisco Fed chief John Williams to separately indicate that a decision on whether to raise rates from near zero — where they've been held since 2008 — at next week's Federal Open Market Committee meeting will be a close call, despite the improvement in the U.S. labor market.

The FOMC meets Sept. 16-17 and economists surveyed by Bloomberg are nearly balanced between those who expect a hike and those who say policy makers will delay action.

The Goldman report presents six estimates of the historical relationship between changes in the firm's financial conditions index and the fed funds rate using the workhorse computer simulation employed by Fed staff to study the U.S. economy, and a variety of standard statistical methods. On average, a 145 basis-point change in the index equated to a 100 basis-point change in the interest rate.

The uncertainty around that estimate is "very large," Goldman economist Sven Jari Stehn wrote in the report. But he added that "given that markets have done much of the Fed’s 'dirty work,' we expect Fed officials to be on hold at least until December."

Other measures of financial conditions maintained by various regional Fed banks point to a tightening as well, though to a lesser degree. One significant difference between the way the indexes are calculated is the weight that the Goldman index places on the dollar's foreign exchange rate.

A good reason for Fed-watchers to keep an eye on the Goldman index: Dudley used it for many years when he was Goldman Sach's chief U.S. economist. Moreover, he has highlighted the importance of financial conditions in various speeches over the last year.

"The appropriate stance of monetary policy will be influenced by how financial market conditions respond to the Federal Reserve’s actions," Dudley, who is the only regional Fed president to have a permanent policy vote on the FOMC, said during a June 5 event in Minneapolis.

"All else equal, if financial conditions tighten sharply, then we are likely to proceed more slowly. In contrast, if financial conditions were not to tighten at all or only very little, then—assuming the economic outlook hadn’t changed significantly—we would likely have to move more quickly. In the end, we will adjust the policy stance to support the financial market conditions that we deem are most consistent with our employment and inflation objectives."

Dudley was describing a scenario in which financial conditions tightened in response to the Fed's first rate increase. A more immediate challenge for policy makers is determining what to do now that markets have pre-empted the move.