TD: Tamping Down Tapering Talk

TD sees the theme for this week's meeting having set by Powell's Jan 14 comment: "Now is not the time to be talking about exit."

• Statement: No major change in tone, though will highlight net weakening in the economy, even with strength of the recovery to date.
• Press conference: Powell to sound "quite dovish" on policy "even as he highlights reasons to believe that growth should be fairly strong in the year ahead", with inflation "key" to when Fed's exit begins, and highlighting recent growth/jobs weakness. Powell will probably warn that "the next few months are likely to be very challenging."
• Will once again state that QE could be made more accommodative via WAM extension/size of purchases. No new specificity on "substantial further progress" though, and "he will avoid being pinned down on timing for either tapering or tightening beyond suggesting that neither is imminent and that tightening is unlikely until well after tapering begin".
• Future action: TD is "skeptical" that inflation data will justify tapering by early 2022. Taper to be announced in Dec 2022 taking effect in Jan 2023; rate hikes not until around the start of 2025.