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Morgan Stanley: Powell To Underscore That Every Meeting Is Live

FED

Morgan Stanley expects the FOMC to signal a March hike in the January statement, but Powell to avoid committing to a pace of tightening while also delivering additional details on QT.

  • Statement: To signal March hike with language: "if labor market progress continues broadly as expected, the Committee judges that an increase in the federal funds rate may soon be warranted.
  • Unlikely to commit to terms like “gradual” or “measured” to describe the policy tightening outlook: if included they would carry a “strong signal” about the path forward; but MS would not take their absence to carry a signal about the intended hiking pace.
  • Press conference: Powell to underscore that every meeting is live.
  • Future action: 4 hikes in 2022 (incl March), QT announced in July to begin August. Max caps at $80B ($50B Tsy/ $30B MBS), with scale-up period of just two months (from $40B in Aug).
  • March or May meetings may culminate in policy normalization document.
  • A 50bp hike “not a likely path for the Fed to take”; rather more likely to hike more frequently.

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