FOMC: What the banks are thinking:

BARC: Look for balanced tone from Bernanke; Expect to acknowledge that if labor market indicators continue to improve, it would warrant a reduction in purchases at one of the next few meetings, if the data on economic growth show signs of improvement, while will also say Fed is watching market conditions particularly inflation; Look for Bernanke to acknowledge that incoming data has been soft; Most expect the first taper to be a Q4 event.

Cred Ag: Economic review to be more cautious than March amid weaker data; see tapering possible in the Sept/Oct meeting; first hike not expected until the second half of 2015; Bernanke may emphasize Fed prepared to increase or reduce purchases.

CS: Maintain view that QE taper likely in Sept; may say it needs “a few more months of data” to evaluate effect of fiscal drag on economy; hard to sustain pace of MBS purchases without disrupting mortgage market, similar for USTs where falling federal deficit may lead to less issuance.
DB: Risk case for FOMC is dovish communication; FOMC to reinforce view that QE purchases can increase or decrease, depending on data, may discuss risks of premature removal of stimulus.

GS: Risky for the FOMC to deliver a hawkish message; do not expect the committee to deviate much from the existing message; Fed officials will try to calm markets at the meeting. Look for modest change in the statement, acknowledgement of lower inflation; Bernanke to reiterate that QE is data dependent will try and dissuade markets from frontloading too much of the entire monetary tightening process; baseline remains that the committee will first reduce the QE pace at the December FOMC meeting

HSBC: May provide clarification on the factors that would lead to a change in the size and pace of the program going forward (either in press conf or statement); Do not think that economic conditions will be sufficiently robust to convince the FOMC to cutback asset purchases in the next few months; Look for reduction in QE in December.

JPM: Likely to make modest downward revisions to its March 2013 central tendency forecasts for both real GDP growth and inflation; timing for reduction in asset purchases will depend importantly on upcoming data; We expect the announcement of the tapering to occur in either September or December, with December a little more likely. And the FOMC is expected to maintain its guidance for the first rate hike; we do not expect it to occur until 2H15.

Nomura: Bernanke led FOMC will take this opportunity to make a clear distinction between tapering QE programs versus its commitment to keep Fed Funds rate “lower for longer”; Look for clear statement that codifies policy differences while flagging concerns over inflation; We like building longs in the front-end while underweight QE buckets.UBS: Look for the Fed to dampen expectations for early tapering given uncertainty on inflation and economic growth; any further weakness in inflation would delay any moves towards stimulus withdrawal.

Wells: Expect to commit to previous statement about tapering in the new few meetings, should data continue to improve; tapering most likely in December, though note that September is likely; may allow Fed to announce outlook strong enough to taper later this year.

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