Morgan Stanley: Focus Moving From Timing To Pace

Morgan Stanley sees the primary focus at the September meeting on the FOMC's debate "around the implications for the timing and potential pace of its taper plans". This meeting will be used to take further steps toward a tapering decision by the end of the year, keeping a Nov or Dec decision in play. Nov less likely, esp given only one more jobs print between now and then.

• Statement: Language to indicate another step toward tapering: "if the economy evolves broadly as
• anticipated, it could be appropriate to start reducing the pace of asset purchases this year."
• SEP/Dot Plot: Dots to show 0 hikes in 2022, 3 in 2023, and 3 more in 2024 (to 1.625%). Even if median doesn't shift, might see more participants joining those who see 2 hikes in 2022.
• Fairly significant revisions to near-term forecasts (lower GDP, higher inflation), not much change to medium-term. M-T growth estimate around 2.0%, modestly above longer-run GDP growth estimate. 2024 core PCE forecast to hold at 2.1%.
• Press conference: Powell to remind that tapering could be similar to last time with flexibility to adjust pace should conditions warrant. Significant dispersion in SEP dots will give Powell ample opportunity to de-emphasize their importance.
• Future action: December taper announcement, $10B Tsy / $5B MBS per meeting pace (with flexibility to go faster / slower) starting January.