Deutsche Bank-US Economic Notes What you need to know for the week ahead-118638154

T2se3r0Ot6kwoPaT2se3r0Ot6kwoPaDistributed on: 02/11/2025 15:00:05 GMTDistributed on: 02/11/2025 15:00:05 GMTDeutsche Bank Research Deutsche Bank Securities Inc. IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS. Economics US Economic Notes Date 2 November 2025 What you need to know for the week ahead Commentary for Monday: Though we have a few private sector data points this week, focus is likely to remain on Fed speak in the wake of Chair Powell’s messaging following last Wednesday’s FOMC meeting. Briefly recapping (see “Fed Notes: October FOMC recap: Dec not a done deal “), the Committee's decisions on rates and the balance sheet were in line with expectations. On the former, the FOMC delivered a 25bp rate cut, bringing the fed funds rate to the 3.75-4% range. On the latter, an end to balance sheet reduction was announced beginning in December. The rate decision saw two-sided dissents – the first since 2019, with Kansas City Fed President Schmid wanting to keep rates steady and Governor Miran once again preferring a larger (50bp) cut. However, Chair Powell's press conference was meaningfully more hawkish than we anticipated. In his prepared remarks, Powell cited "strongly differing views" in warning that a December rate cut is "far from…a foregone conclusion." This comment, which was repeated later in the presser and was bolstered by upbeat language on economic activity and more sanguine comments about the labor market, sought to correct market pricing which had moved to reflect near certainty of another rate cut before year end. Powell later cited a "growing chorus" of officials that think the Fed should "wait a cycle", a sentiment that had been foreshadowed in the September SEP (see “Who’s who in the Fed’s latest dot plot?”). On QT, the Committee announced that it will conclude balance sheet runoff on December 1, broadly in line with our expectations. Thereafter the Fed will roll over maturing Treasury securities via non-competitive bids at Treasury auctions, proportional to announced offering amounts, and reinvest MBS principal payments into Treasury bills. In Q&A, Powell stated that the Fed plans to hold the aggregate size of its balance sheet unchanged “for a time, but not a tremendously long time,” before conducting purchases to grow securities holdings in line with growth in demand for its liabilities. Our expectation is that these purchases will commence in Q1. Powell also indicated that the Committee discussed but made no decisions around the desired long-run composition of the SOMA portfolio but that there is broad agreement on reducing the share of MBS and moving in the direction of a Treasury portfolio that more closely matches the universe of outstanding Treasuries, which will entail shortening the duration of the Fed’s holdings. This week’s full line up of Fed speakers