The FOMC statement was somewhat more hawkish because of the following points.

It did not change inflation guidance despite materially lower commodity prices since the June FOMC. That said, gone is reference to how “energy prices appear to have stabilized.” That this was not enough to also lead them to change inflation guidance leaves open two uncertain possibilities. One is that the Fed requires more evidence on oil prices before revisiting guidance and forecasts. This is sensible to us. Two is that the Fed is simply looking through softer energy prices in favour of other drivers of its inflation forecast and views lower oil prices as a reflationary increase in consumer purchasing power over time. The Fed now says it only needs to see “some” further improvement in the labor market before it is appropriate to raise the target range for the Federal Funds rate. This may be a lowering of the bar on the amount of additional job growth that is necessary before tightening and could be a signal that just another one or a few months of decent job growth will result in a hike. To this point, the Fed is rapidly approaching its full employment goals given its forecast for the unemployment rate of 5.2-5.3% (it is currently 5.3%). Its forecast for inflation is a core PCE deflator between 1.3-1.4% (it’s currently at 1.2% y/y). Its forecast for GDP is growth between 1.8-2% and Q2 just printed at 2.3%. Housing references went from showing “some improvement” to “showing additional improvement”. There is also slightly more optimistic language with respect to the labor market, with the previous statement noting that labor underutilization had “diminished somewhat” in the June statement to simply “diminished since early this year” in the July statement.

However, with a lot of data between now and September 17th such as GDP revisions, two nonfarm payroll reports and two inflation readings among the considerations, the conviction is at best modest.