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Wells Fargo expects a third 25bp hike at September 2022's FOMC meeting, alongside an announcement that the Fed will begin running off its balance sheet in October.

  • This will take the form of a passive runoff with securities maturing up to a monthly cap: initially $25B ($20B Tsy, $5B MBS), increasing by $10B Tsy/$5B MBS per month from Nov 2022 through Mar 2023 to a terminal monthly cap of $100B ($70B Tsy / $30B MBS).
  • This is on the hawkish end of expectations and would be double the previous cycle's terminal runoff pace of $50B, but Wells Fargo notes that when scaled to the Fed's asset growth, roughly equivalent.
  • This pace would bring the Fed balance sheet from ~$9T to a little below $7T by end-2024, or around 24.4% GDP - which Wells Fargo says represents the same level as in mid-2015.
  • "We think the most likely outcome is for upward pressure on long-term Treasury yields, but only moderately so", pencilling in an end-2023 10Y Tsy yield of 2.35%.

MNI London Bureau | +44 203-865-3807 |
MNI London Bureau | +44 203-865-3807 |

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