Nomura: Dots To Show 2-3-3 Hikes

In line with median expectations, Nomura expects taper to be doubled ($30B/month), transitory to be retired even if language still indicates inflation is expected to moderate and the dot plot to show 2-3-3 hikes over 2022-2024.

• Statement: The word transitory will be retired but the third paragraph on the outlook should be unchanged (“progress on vaccinations and an easing of supply constraints” are expected to lead to a reduction in inflation), implying the Fed is maintaining its expectation of moderating inflation in 2022.
• Dot Plot: 2 hikes in 2022 (up from 0.5), 3 in 2023 and 3 in 2024 for a total of 8 cumulative hikes over 2022-24 (up from 6.5).
• The 3 hikes in 2023 allow for a “pause” from quarterly moves to initiate balance sheet normalization in September, similar to 2017.
• SEP: They don’t expect material revisions to inflation for 2022 and beyond but PCE inflation revised above 2.3% (a modest overshoot above the 2% goal) might be accompanied by aggressive tightening embedded in the dot plot.
• Press conference: Potential preparing remarks for earlier rate hikes, relative to Nomura’s current expectation for liftoff in September, if monthly inflation does not moderate.