UBS: Powell Likely Won’t Rule Out 75BP In Future

The FOMC will hike rates by 50bp in May, while formally announcing the start of balance sheet runoff in what “may end up being the most hawkish meeting outcome of the current cycle”, writes UBS.

• Statement:After “decent reworking” of language in March, fewer changes coming in May. Will keep the phrase "anticipates that ongoing increases in the target range will be appropriate". Will no longer say assessments will take into account “readings of public health”.
• A hawkish risk is that the FOMC no longer includes "supply and demand imbalances related to the pandemic" as among the reasons for the elevated inflation.
• No dissents to the decision (Bullard said 75bp not his base case).
• Press conference: The terms "expeditious" and "more neutral" will be included in Powell’s prepared remarks. Powell “may not endorse” a 75bp hike in future, “but likely will not rule it out”.
• He will “talk tough on inflation, and note that the 50 bp increase is another step, but does not get them to the "more neutral" stance the Committee deems appropriate.”
• Future action: Another 50bp hike in June, after which 25bp hike per meeting through 2022 (to 2.25-2.50%).