Deutsche Bank's View on FOMC - FJElite

In terms of the Fed's reaction function, respondents generally see Warsh as not having a revolutionary impact. On balance, the modal outcome is for "about the same" responsiveness to inflation and labor market conditions, as well as neutral rate. That said, any expected changes skew dovish - about 1/3 of respondents think Warsh will make the Fed less responsive to inflation and nearly 30% think the Fed will be more responsive to the labor market. Views on the neutral rate are balanced.

There is significant uncertainty about the timing and magnitude of balance sheet reduction under Warsh, with the distributions of responses across outcomes very flat. In terms of timing, the modal expectation is for balance sheet reduction to commence in HI 2027 (37% of respondents). In terms of magnitude, the modal outcome is "more than $ltn" (24%), with equal shares answering "no particular view" and less than $500bn. Taking the midpoints of the ranges, the average expectation is close to $700bn. However, we caution that it is unclear if this reflects expectations of outright reduction or relative to a counterfactual in which the balance sheet continues to rise.

Finally, respondents expect meaningful changes to Fed communications under Warsh. 84% expect less forward guidance; 57% expect the dot plot to be dropped; 35% expect fewer public comments from other officials; 34% expect fewer press conferences; and 13% expect the SEP to be eliminated entirely.