Fed upbeat about economy, only looking for "some" further improvement

The Federal Open Market Committee (FOMC) appears relatively upbeat in its assessment of the economy, with the labor market exhibiting "solid job gains and declining unemployment." Moreover, the Committee felt that the "underutilization of labor resources has diminished since early this year" (previously qualified as somewhat).

The FOMC did not alter its take on consumer spending, business investment nor net exports, but felt the housing sector has shown additional improvement (previously qualified as some).There was no change in the inflation assessment aside from taking out the "energy prices appears to have stabilized" part in light of the recent plunge in the barrel.

The FOMC also added one qualifier in the forward guidance section of the statement, suggesting that rate hikes will take place when the Committee sees "some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."

Alongside the more upbeat economic assessment, the addition of "some" when it comes to further labor market improvement suggests that the bar for the Fed hikes is perhaps lower than earlier thought with the FOMC unlikely to wait much longer before beginning to raise rates. Of course, all Fed actions are data dependent and the Fed will only move off ZIRP if the data cooperates. 

"In our view, as long as the labor market continues to add 200k jobs in the next two reports and the jobless rate continues to tick down closer to 5%, and core inflation begins to track higher, a September rate hike is very much in play and remains our base case scenario," notes TD Economics.

The Fed did not change its assessment of the risks to the outlook, which remain "nearly balanced," suggesting that unforeseen events could yet delay the September liftoff until later in the year, or even 2016.