UBS: Now Is The Time To Taper, Not To Raise Rates

Going into the November FOMC meeting, UBS sees markets as pricing in too much tightening in 2022, with "recent erratic price action in the Treasury curve and in BEs … likely to create a very high hurdle for the Fed to accelerate the pace of tapering, as liquidity concerns are likely to make them wary of stressing the market."

• Statement: Only a minor change to inflation language; in Dec will change/remove "transitory".
• Press conference: Powell might be asked how the Fed thinks about full employment – should it be the unemployment rate or the level of employment. Powell would argue that it's likely that some people come off labor market sidelines, contrasting with some members of the FOMC (eg Bowman).
• To emphasize that the taper decision does not carry a signal about rate hikes. Powell to mention it's likely to take "some time" for hiking conditions to be met. Or could say the decision is still a "ways off".
• Large part of presser to be on new Fed rules on trading.
• Future action: Even the hawks are likely to be reluctant to hike in H1 2022 for fear of stressing the market.