ING: Ending Asset Purchases Early, Building To A March Hike

While ING says that “on the face of it” the January FOMC meeting should be a “non-event”, they are almost alone on the sell-side in expecting the Fed to announce an immediate end to asset purchases.

• “This earlier corrective action on the balance sheet would also help reduce talk of a potential 50bp March rate hike, while opening up the possibility of an earlier start to a shrinking of the balance sheet.”
• Press conference: Will be interesting to see how technical it gets re implications of B/S reduction.
• May be some commentary on rates markets moves in recent weeks; “The Fed is likely to be pleased that inflation expectations have eased; a sign that their hawkish ambitions are already reaping some benefit” though there is “room for much more” for real rates to rise from negative levels.
• Future action: Hikes likely coming on quarterly basis. “earlier, more aggressive action on balance sheet reduction can do a lot of the heavy lifting in terms of “normalising” policy.”
• QT to begin “within six months of the March rate hike”, at $16B initially, rising to $100B ($60B Tsy / $40B MBS).