Clues on balance sheet reduction will be in focus as Fed eyes an October start - ING

"The plan is to start the process with USD10bn per month in balance sheet shrinkage – USD6bn from Treasuries, USD4bn from agency & mortgage-backed securities (MBS) – rising by similar amounts at three-month intervals over 12 months until the monthly ‘caps’ for Treasuries and MBS reach USD30bn and USD20bn, respectively.," notes James Knightley, Senior Economist at ING.

Key quotes:

"If the Fed were to start the process in October, only USD197bn of the USD425bn in maturing Treasuries in 2018 would still be reinvested."

September announcement looking most likely

"There’s a risk that the Fed hints in this week’s statement that the process could commence “soon” – an implicit signal ahead of the next meeting in September."

Market Impact: July FOMC meeting to shed light on the 2H17 policy sequencing & concerns over accommodative financial conditions

"Markets seem to be priced correctly for a Sept. balance sheet policy change, with investors still erring over a Dec. hike. A ‘status quo’ Fed statement could be mildly supportive for a politically plagued dollar. For global markets, we are shifting to the idea that a rise in long-term yields driven by a pickup in the term premium may be the lesser of two evils; risky assets stand a better chance of withstanding such a bond market adjustment, rather than a sharp re-pricing of policy rate expectations." explains Viraj Patel, FX Strategist,