Nomura: “Transitory” Out, Emerging Dual Mandate Tensions In

Nomura expects "transitory" to be replaced by acknowledgment of supply side pressures, and the press conference to pave the way for a 2022 hike whilst downplaying the urgency to do so.

• Statement: Modifications to incorporate more persistent-than-expected price pressures, likely dropping "transitory" with focus instead on supply side pressures.
• Press conference: A repeat of pre-blackout remarks with inflation acknowledged to likely remain elevated "well into" 2022 and maximum employment being reached next year, whilst also noting a classic trade-off between the maximum employment and inflation goals is emerging.
• Remarks expected to reinforce our call for liftoff in Dec 2022, but likely downplaying urgency to hike.
• Future action: Too early to adjust rates forward guidance. $15B reduction in monthly pace of purchases, set to end June 2022, with bar for adjustment quite high but risk skewed towards acceleration.
• Rates outlook: Nomura thinks the market pace of normalization is too hawkish, favoring a first hike in Dec 2022. Then 2 in 2023; 2 in 2024.