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TD Call Change: 175bps Of Hikes In 2022

FED
  • TD now look for 175bp of hikes in 2022, starting with 50bp in March and followed by 25bp at every meeting until November.
  • The pause in Q4 is to allow the Fed to reassesses moderating inflation and growth, before hiking twice more in 2023 for 50bps to arrive at a terminal rate of 2.25-2.50%.
  • The risk is from stickier inflation, with the Fed needing to “overshoot neutral and end at a higher terminal rate”.
  • QT: They stick to a May announcement, “reaching terminal monthly caps of $60bn and $30bn for Treasuries and MBS, respectively”.
  • But they see the caps being phased in over 3 months and “also think that once the caps have been phased in, any MBS paydowns beyond the caps will be reinvested in Treasuries — a change from the 2017-2018 runoff experience”.

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