Citi: Risks Balanced Toward The Hawkish Side

Citi expects "at least some talking about tapering" at the June meeting, esp with the April minutes and Vice Chair Clarida's associating himself with those minutes. While it's still too early to expect a clear signal on "substantial further progress", officials may be ready to admit the economy is making "good progress" and that it "may be becoming time to more fully discuss how a taper should play out".

• Risks relative to market expectations are balanced toward the hawkish side for this meeting. Were Powell to suggest any component is not "transitory"; even a stronger 2021 core PCE projection "may be significant enough to garner market attention".
• SEP/Dot Plot: Significant upward revision in 2021 core inflation (mechanically hard to forecast Q4/Q4 core PCE below 2.5%; Citi sees 3+%); 2022 probably nudged higher though still below 2021. 2023 median dot to show one hike; hawkish risk of potentially more than one hike.
• Press conference: "Powell may perhaps be ready to state in the press conference that the committee discussed tapering in the context of an economy making "good progress" but that "substantial further progress" (the criterion for tapering) is still "some time" away.
• A hawkish surprise would be if Powell drops the "some time" characterization and instead indicates that tapering is likely in the foreseeable future."
• Administered rates: No change to IOER or ON RRP rates.