Citi: Fed To Release "Significant Details" On Tapering This Week

Citi expects the FOMC to communicate "significant details" on tapering this week, including warning that tapering may be announced at an upcoming meeting – though say this "may not be much of a hawkish surprise for markets" given existing expectations for a late 2021 or early 2022 taper.

• The FOMC looks more focused on potential upside inflation risks, and with 7 of 18 indicating a 2022 hike, a majority is likely to at least want to have the option to raise rates next year – meaning that the taper should be done by end-2022.
• Citi doubts the downside risks from the Delta Covid variant will have much impact on Fed decision making. Additionally, lower yields since the last meeting will increase the urgency to taper for FOMC members who are concerned about financial stability.
• Statement: "Language around progress on vaccines may be adjusted to indicate the slowing pace of vaccinations and/or risks of the delta variant. There is a hawkish risk that the statement is changed to reflect that the committee expects a near-term taper."
• Press conference: Citi wouldn't be surprised to see a "formal set of 'normalization principles' released following the meeting'", cf the plan for balance sheet reduction in June 2017.
• Future action: Taper announcement in Sep, beginning in Dec; $10B Tsy /$5B MBS, completed in 8 months. Though several other permutations, including meeting-by-meeting decisions given uncertainty over the outlook.