JPMorgan: Expect A Sternly Hawkish Tone From Powell

JPMorgan sees a 50bp hike and the announcement of the start of QT at the May meeting, but also thinks there’s an “outside chance" (perhaps one-in-five) of a 75bp raise.

Possible there will be a dissent or two.

• “The Powell Fed has displayed a strong preference to telegraph its intentions ahead of meeting day, and for that reason we think 50bp is very likely... But if there is a time to break from habit it’s when the Fed’s inflation credibility is being called into question, and so we don’t write off the possibility of a larger rate move.”
• QT to begin in June. Could revisit decision to include bill runoff in monthly caps, but don’t expect to hear anything further on asset sales in May’s implementation note.
• Statement: Forward guidance will again indicate that “ongoing increases” in rates will be appropriate. But risks to guidance skew hawkish; “continue to expeditiously remove accommodation” could imply 50bp hikes until reaching neutral. JPM notes that “may be too much for the majority of the Committee to stomach.”
• Press conference: Expect a “sternly hawkish tone” from Powell, who will convey the need to return rates to neutral, and high likelihood will need to go into restrictive territory. Will likely indicate that 50bp or larger hikes are “fair game” in coming meetings.