Deutsche: Statement Risks Lie In Both Dovish And Hawkish Directions

Deutsche expects "an update on the progress of [taper] discussions at the July FOMC meeting - more specifically, the FOMC will discuss progress toward taper thresholds and receive a technical briefing on timing/pace/composition.

• Few changes to the statement; however risks in both directions: more hawkish adjustment could put greater emphasis on recent inflation data (e.g. downplaying transitory factors / removing the requirement for "substantial" from "further progress".); dovish would acknowledge downside risks from Delta Covid variant.
• Powell to indicate that taper talk to continue at upcoming meetings, but short of a clear signal that tapering is imminent.
• Re market moves: "We would expect the Chair to attribute lower yields to both technical and fundamental factors…but also downplaying the possible pessimistic signal about the growth outlook."
• Future action: Clearer signal of tapering at Jackson Hole/ Sep, official announce in Nov. If June CPI surge motivates an acceleration in taper talk, we could get a clearer signal that tapering could be as early as Sep. Faster drawdown in MBS ($10B MBS/$10B Tsy) to start. Rate liftoff in 3Q 2023, 75bp of hikes in 2024.