Fed Research snapshot: declining, yes, but how fast? – Forex action

Key points to remember

  • We expect the Fed to announce a gradual reduction in QE at next week’s meeting. We expect the Fed to start declining immediately in November with a rate of decline of $ 15 billion per month (ended in June). The risk is oriented towards a higher rate of decline of 20 billion dollars per month.
  • Fed Chairman Jerome Powell was more concerned about high inflation on Friday, which we hope he will repeat on Wednesday. We expect Powell to reiterate that the tapering decision is unrelated to a future rate hike decision. Still, we expect the rhetoric to be more hawkish than in September.
  • Please note that the Fed’s policy announcement is at 19:00 CET (while the EU switches to standard time on Saturday). The press conference begins at 7:30 p.m. CET.
  • We are still expecting two rate hikes next year (one in September and one in December).
  • FX: We continue to forecast EUR / USD at 1.10 out of 12M (with downside risks).
  • Fixed Income: We are still seeing an increase in 10-year UST yields. We currently have a target of 2%.

Full report in PDF.

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