Deutsche: Too Soon For Taper Talk

Deutsche sees little impetus for changing policy at the January FOMC, with taper talk premature as "though medium-term growth prospects have substantially improved, the realized data have yet to make any progress and in fact have taken a step back".

• Statement: Aside from acknowledging recent softness in data, will be unchanged.
• Press conference: To focus on the evolving economic outlook and taper timeline. Powell likely to adopt a dovish tone (vindicated by recent data softness), despite upside risks from fiscal stimulus. To highlight that next few months could be challenging, requiring continued Fed accommodation, though medium-term outlook more optimistic.
• Powell to reiterate that it is premature to contemplate potential taper timeline, with fiscal stimulus timing/size uncertain, as well as uncertainty on timing of "herd immunity".
• Deutsche says Powell "should use some variant of the Committee is 'not even thinking about thinking about raising rates'".
• Future action: Parameters of QE unlikely to change in near term. But Fed to begin signalling intentions to taper at June FOMC, and to start taper in Dec 2021. Rate liftoff in Q4 2023.