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Morgan Stanley expects no change to policy at the April FOMC (including to administered rates), with Powell likely to repeat that "it is likely to take some time for substantial further progress to be achieved".
- Consensus expecting advance notice for tapering by June stands to be surprised by the Fed's patience.
- Hawkish surprise: If the "some time" language changes, e.g. if statement/Powell presser acknowledges "some progress" in the recovery and/or change "some time" to "more time". Overall, MS expects the language to evolve over time in that direction to provide a heads up that tapering is on the horizon. Also hawkish if statement changes/removes the word "considerable" re risks from pandemic on outlook.
- Dovish surprise: Broadening the gauge of risks from the pandemic to progress on vaccinations globally.
- Future action: July FOMC/Jackson Hole to provide taper signal. Taper to begin in Jan 2022 (-$10bn/meeting), but risk that it begins later. First rate hike in Q3 2023 with pace of two 25bps hikes / year thereafter.