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Nomura: FOMC To End QE Early, Release Roadmap For Runoff This Week

FED

Nomura sees the Fed cementing market expectations for a 25bps March hike at the January FOMC / press conference.

  • Fed to end QE early at the January meeting and release an updated “Policy Normalization Principles and Plans” roadmap for balance sheet runoff. Nomura notes Brainard mentioned ending asset purchases in “Q1”, instead of “March”.
  • Statement: To include language that maximum employment has been or will soon be achieved, with rate hike “relatively soon”.
  • Press conference: Powell to underscore reasons supporting decision not soon begin raising rates, but may stress that while multiple 2022 hikes are likely, additional action beyond March (incl runoff) will be data dependent. Do not expect Powell to endorse 50bp hike.
  • Future action: 4 2022 hikes (incl liftoff in March), but risks on both sides to forecast. 2 hikes in each of 2023 and 2024 with terminal rate of 2.00-2.25%.
  • July runoff announcement effective August; earlier announcement is a growing risk. Initial pace $20B ($12B Tsy, $8B MBS), maxing out at $100B ($60/$40).
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