Wrightson ICAP: IOER/ON RRP Tweak Is A Close Call

Wrightson ICAP says "there is no doubt that the FOMC will at least "talk about talking" about a taper in some form" though they surmise "that the minutes … will show that the FOMC did not order up a full set of staff presentations on tapering options this week but left that for a later meeting (probably July). However, a number of FOMC members will raise the topic independently."

• While "if the FOMC were starting from scratch on its balance sheet policies, we doubt there is a single element of today's purchase program that it would choose to retain", Wrightson ICAP doesn't see many options for the Fed at this week's meeting in light of communications objectives.
• SEP/Dot Plot: Median dot to show hike in 2023. The communications challenge surrounding such a change "should be manageable". Core PCE median almost certainly will move up for 2021, but 2022/23 may not change much. So if an FOMC majority sees a 2023 hike, it's a sign they see stronger employment trends allowing them to begin normalizing, rather than fearing inflation pressures will force them to.
• Administered rates: Most likely that Fed announces a "tweak", but could wait until later this month.