- We expect the Fed will announce QE tapering at next week’s meeting. We expect the Fed to start tapering immediately in November with a tapering pace of USD15bn per month (completed in June). Risk is tilted towards a higher tapering pace of USD20bn per month.
- Fed Chair Jerome Powell sounded more concerned about high inflation on Friday, which we expect him to repeat on Wednesday. We expect Powell to repeat that the tapering decision is not related to a future decision on rate hikes. Still, we expect the rhetoric to be more hawkish than in September.
- Please note that the Fed policy announcement is 19:00 CET (as the EU switches to winter time on Saturday). The press conference starts 19:30 CET.
- We still expect two rate hikes next year (one in September and one in December).
- FX: We continue to forecast EUR/USD to 1.10 in 12M (with downside risks).
- Fixed Income: We still see upside for 10Y UST yields. We currently have a 2% target.