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Deutsche: The Bar To Pushing Taper Beyond November Is High

FED

Deutsche expects the September FOMC to provide "important clues about the Fed's policy normalization plans over the coming years". The bar to pushing the taper announcement beyond November is "relatively high".

  • Statement: To adopt Powell's/Williams' language of a taper being appropriate "this year" as long as the economy remains on track. Other than that, few changes. Nothing on progress on details about tapering (pace / composition), which is more likely to be left to the press conference.
  • SEP/Dot Plot: No hikes in 2022, 3 in 2023, and a further 3 in 2024. 2021 GDP growth lower, up in 2022, unch 2023, deceleration toward trend in 2024. 2021 core PCE inflation higher; risk that 2022 rises slightly. Returning to 2% by 2024.
  • Press conference: Powell to try to disentangle tapering from rate liftoff ("no mechanical link"), and downplay the policy signal from the dot plot. To maintain optionality about the exact timing of the taper announcement. Could highlight that despite recent downside jobs surprises, an upgrade to 2022 growth outlook counterbalances that, and could highlight that 3-month avg job gains remains very sturdy/slack improving.
  • Future action: Nov taper announcement. Pace of $10B Tsy / $5B MBS per meeting, reducing asset purchases to zero in Oct-22. 2023 liftoff.
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