UBS: FOMC Could Release Runoff Gameplan Tomorrow

UBS expects the January meeting to set markets up for a March rate hike – and could provide additional guidance on runoff. UBS would not be surprised if asset purchases were ended before March, though not the core view.

• Possible the FOMC releases a document with normalization principles and plans for balance sheet reduction at the January FOMC, “which is also the annual organizational meeting and a time at which the longer run goals and strategy are reaffirmed. If not released then, we think it will be released in March.”
• Statement: To be so direct as to include “next meeting” language re a rate hike – a “strong signal” akin to the October 2015 statement.
• Press conference: Powell to provide guidance that work on runoff continues; plans are progressing to shrinking asset holdings not long after purchases end.
• Future action: March liftoff, 25bp increases in Jun and Sep. A two-25bp-per-year pace in 2023 and 2024 (Jun and Dec meetings in each), to 1.75-2.00% by end-2024.
• Balance sheet runoff announced at the May FOMC (though could slip to June), but runoff to start no later than July FOMC. $30B caps ($20B Tsy /$10B MBS) initially, rising to $45B in Q4, with final pace of $60B in Q1 2023. Though faster $75B ($50B Tsy/$25B MBS) can’t be discarded.