Morgan Stanley: "Getting Reverse Repo Near Zero Will Be The Starting Point For The Taper"

By Seth Carpenter, Chief Global Economist at Morgan Stanley

Neither we nor markets expect a policy move at this week’s Fed meeting, but no doubt we will all be looking for hints on QT. Nothing explicit is likely in the policy statement, but Chair Powell may well be asked about it. Our outlook is that while the FOMC may start the discussions around tapering QT as soon as at this meeting, tapering itself is still a ways off, and the actual end of QT will come early next year.

In January and May 2022, the FOMC published the principles and then the plan for QT. The fact of a taper this year is not news. More recent communication from Fed officials (for example from President Logan and Governor Waller) reinforced a preference for the reverse repo (RRP) facility to be drawn down to zero, and we infer that getting the RRP near zero will be the starting point for the taper.