Deutsche: All Revved Up To Go In March

Deutsche expects the January FOMC meeting to “continue the Fed's hawkish policy pivot by signaling that it will soon be appropriate to begin removing accommodation”.

• While Deutsche had thought ending purchases immediately was possible this week, “explicit comments” from FOMC officials “seem to have foreclosed on that possibility”.
• Statement: Could add “expects that it will soon be appropriate” to raise rates to the policy stance language; may also add “at upcoming meetings” to drive home the point but may want to stop short of a firm commitment.
• Press conference: To focus on upcoming plans for tightening, incl timing/scope of rate hikes as well as the pivot from QE to QT. Should further solidify March liftoff expectations.
• Powell unlikely to provide much clarity about the number of 2022 hikes; may provide more substantial info on QT. Powell could “socialize” possible ranges of outcomes in order to start guiding expectations.
• Future action: 4 hikes in 2022 (starting in March), QT to begin early Q3, with caps announced in May, QT announced in June/July (equal to between 2.5 / 3.5 rate increases). Caps set $35B initially, reaching $105B by year-end ($60B Tsy, $45B MBS) and full unwind of bill portfolio