FOMC Preview: Final Asset Purchase Announcement Expected; Hints at “Liftoff” in March

From Merrill Lynch:

"The Fed will announce the last round of asset purchases at the January FOMC meeting, which is well anticipated. We believe Chair Powell could continue to pivot hawkishly during the press conference."

From Goldman Sachs:

"The FOMC is likely to use its January meeting next week to hint at a March liftoff and to begin formulating a plan for balance sheet reduction. We expect the FOMC to raise interest rates four times this year starting in March and to announce the start of balance sheet reduction in July."

For review, for most of last year the FOMC was purchasing "at least $80 billion" Treasury securities per month and "at least $40 billion" agency mortgage‑backed securities (MBS) per month.

In November, the FOMC started to taper their purchases.  The FOMC announced a reduction in their purchases to "at least $70 billion" Treasury securities per month and of "at least $35 billion" agency MBS per month. They also announced a further reduction in December to "at least $60 billion" Treasury securities per month and of "at least $30 billion" agency MBS per month.

In December, the FOMC announced an acceleration in the taper, and reduced their purchases to "at least $40 billion" Treasury securities per month and of "at least $20 billion" agency MBS per month starting in January.  A similar reduction in asset purchases in February (to $20 billion in Treasury securities and $10 billion in agency MBS) seems likely – and that would be the final asset purchases.