Halister News

(Bloomberg) -- FOMC’s rate projections are seen as drawing more attention than any balance-sheet announcement Wednesday, based on published research by analysts; tapering of Fed’s $4.47t portfolio is seen as a given, with rates unchanged.   

• RBC sees potential for 2020 median dot to show Fed’s tightening cycle is coming to an end; FTN, Morgan Stanley say long-run dot could fall to 2.75% from 3%; tapering of balance-sheet could send yields higher for longer over time: Bloomberg Macro View
• NOTE: MBS analysts retain recommendations amid expectations that Fed will announce unwinding of balance sheet on Wednesday

BofA (Michelle Meyer, others)

• Any shift lower in 2019 or longer-run dots would support a steeper curve, given potential for a more patient Fed to allow for a shift upward in inflation
• Real question is when the Fed will hike again and whether it will continue hiking in next two years
• MORE

Bloomberg Macro View (Garfield Reynolds)

• Fed’s pruning will send yields higher for longer
• Plan to trim balance sheet has plenty of potential to end with a bang as three-decade bull run for bonds gets killed off
• MORE

Morgan Stanley (Matthew Hornbach, others)  

• Lower median long-run dot is the biggest risk to call by Morgan Stanley economists for status quo; dot could fall to 2.75% from 3%  
• Next biggest risk is a lower median 2018 dot, possibly falling to 1.875% from 2.125%, followed by possibility that Yellen takes a “more dismissive line” toward downside surprises in inflation data 
• Balance-sheet normalization should ironically attract the least amount of attention
• Investors should enter tactical UST 2s30s flatteners, given risks to outcome of FOMC meeting

FTN (Chris Low)  

• Long-run dot could drop to 2.75% from 3% if just two participants shift expectations a quarter-point lower
• More likely that the 2017 dot will stay the same and the 2018, 2019 and long-run dots will shift
• Combined message of Fed’s summary of economic projections and Yellen’s press conference will tilt dovish

JPM (Michael Feroli)

• FOMC’s dots will be “most-watched development” of meeting
• While more FOMC participants may expect no more hikes this year relative to June forecasts, it won’t be enough to bring down median dot
• Fed will continue to be at odds with current market pricing for 2018-2019 outlook; see MORE
• In separate note, strategists led by Matthew Jozoff said a JPM survey of MBS investors found they have a “nonchalant attitude” toward Fed’s tapering  

RBC (Tom Porcelli, Jacob Oubina, Michael Cloherty)  

• Release of 2020 dot for first time raises question of whether policy makers will show tightening cycle coming to an end
• Cycle could effectively end with fed funds rate at 2.9% in 2019 or 3% in 2020; alternatively, policy makers might show hikes beyond 3% neutral rate in 2020  
• MORE

Wrightson ICAP (Lou Crandall)

• Big question is how Fed will frame debate about possible hike in December
• Wrightson’s view is that Fed should tighten again in December, but data may not let policy makers do it
• MORE

--With assistance from Alexandra Harris. To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Mark Tannenbaum