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BofA: Expect Data-Dependent Calendar Guidance On Taper

FED

BofA expects the Fed to introduce data-dependent calendar guidance on tapering at the September FOMC, with the taper signal and a potential SEP dot increase risking a hawkish market interpretation.

  • Statement: To note that "the Committee believes it could be appropriate to start reducing the pace of asset purchases this year" conditional on ongoing movement toward employment "substantial further progress". Note not just announcing it by end-year, but starting it.
  • SEP/Dot Plot: No 2022 hikes, 2 2023 hikes, 3 2024 hikes. No change to long-run dot. 2021 GDP revised down with PCE revised up. No other changes.
  • Press conference: Powell to clarify criteria for maximum employment and also touch on the taper timeline. Likely to separate taper start from rate hikes. May face questions about ON RRP counterparty limit (currently $80B).
  • Future action: Taper announced in Nov, first reduction in Nov to Dec purchase calendar. $15B pace ($10B Tsy / $5B MBS) per meeting, ending Aug-Sep 2022. If on a monthly pace, could end by June 2022. Rate liftoff in 2023.
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