UBS: Powell Likely Won’t Rule Out Future 75BP

The FOMC will hike rates by 50bp in May and formally announce the start of QT, writes UBS. The QT announcement will include 3-month phase in period between May and July moving up to $60B and $35B respectively.

• Statement: Will keep "anticipates that ongoing increases in the target range will be appropriate"; will no longer say assessments will take into account “readings of public health”. Hawkish risk: no longer includes "supply and demand imbalances related to the pandemic" as among the reasons for the elevated inflation.
• No dissents (Bullard said 75bp not his base case).
• Press conference: The terms "expeditious" and "more neutral" will be included in Powell’s prepared remarks. Powell “may not endorse” a 75bp hike in future, “but likely will not rule it out”. He will “talk tough on inflation, and note that the 50 bp increase is another step, but does not get them to the "more neutral" stance the Committee deems appropriate.”
• Future action: Another 50bp hike in June, after which 25bp hike per meeting through 2022 (to 2.25-2.50%). QT pace slightly above $1T/year through late 2023, coming down in early 2024.