TD: A Booster For The Taper

TD sees the Fed lifting off rates on the late side, in 2023. For the December FOMC:

• Statement: "Transitory" to be retired, but officials to make clear they expect inflation to slow significantly once Covid pressures materialize. Could tweak forward guidance on liftoff "to raise the possibility of rate hikes even before 'maximum employment' is reached, with flexibility potentially needed to prevent long-term inflation expectations from rising excessively". Could note that inflation criteria for liftoff has already been reached.
• SEP/Dot Plot: 2 hikes in 2022 dots; 3 in 2023; 3 in 2024.
• Press conference: Powell to emphasize no direct link between end of QE and start of rate hikes; may be coupled w hawkishness re possibility that Fed may have to raise rates before "maximum employment" reached. Don't expect clear signal on how many rate hikes before balance sheet begins shrinking.
• Future action: Liftoff in March 2023; 3 hikes in 2023 and 3 more in 2024:
• TD is "skeptical that the funds rate will be raised soon after tapering ends, as we expect fiscal policy to turn contractionary and we expect enough slowing in inflation as well as growth in 2022 to allow officials to be patient in their quest for maximum employment" though they "recognize the risk of much earlier tightening than we are projecting if the data remain very strong".
• QT announced in December 2023, starting Jan 2024.