The market now generally expects the Fed to announce it will quicken the pace of trimming asset purchases at its meeting next week.
Wells Fargo says it expects that starting January the Fed "will purchase $45 billion of Treasuries and $22.5 billion of MBS, i.e., reducing Treasury and MBS monthly purchases by $15 billion and $7.5 billion, respectively. At that pace, asset purchases would wrap in April rather than June."
Some banks are looking for tapering to end as soon as March, which would clear the runway for the FOMC to start quarter-point hikes.
That liftoff point could be the start of bigger company payouts (NASDAQ:PFM).
"Over longer time frames, there is a general connection between a rising fed funds rates and dividend growth," Citi strategist Scott Chronert writes with a note. "We suspect that this is implicitly tied to FF responding to stronger economic activity, with follow through to earnings and, ultimately, dividends."
He says the relationship has been trickier since the Financial Crisis but adds "we postulate that a rising Fed Funds target rate could put pressure on corporate C-suites to make sure that respective dividend policies remain attractive to investors relative to other income alternatives."
After strong earnings growth this year, Citi is looking for growth in S&P 500 dividends (NYSEARCA:SDY) of 10% to 15% in 2022.