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If Fed Chair Jerome Powell sounds ‘too optimistic' this week, he'll rattle Wall Street, Morgan Stanley warns

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Biggest wild card is Jerome Powell sounds 'too optimistic:' Matt Hornbach

Morgan Stanley's Matthew Hornbach sees a chance the Federal Reserve's two day meeting this week will rattle investors.

According to the firm's global head of macro strategy, Federal Reserve Chair Jerome Powell must avoid sounding too upbeat on Wednesday, when central bankers issue their policy statement and Powell holds a news conference.

"The biggest wild card is that the chairman sounds too optimistic based on the data that we've had so far," he told CNBC's "Trading Nation" on Monday. "The outlook is definitely bright."

If Powell places too much emphasis on economic strength, it will spark concerns that the Fed will pare down its easy money policies sooner than expected, Hornbach warns.

"The markets may end up reading too much into his optimism and not enough into the need for patience to see more data come through," he said.

His base case is Powell will successfully ease Wall Street fears over inflation and potentially higher interest rates.

"While the data over the last couple of months has been outstanding, it just hasn't been enough data for the Fed to really channel that confidence into its outlook from here," said Hornbach. "I'm expecting the chairman to frame it in that way. Great data, we just need a lot more of it."

Hornbach, who expects the U.S. economy to outperform globally, also believes Fed policies will help the benchmark 10-year Treasury Note yield trade sideways through 2021.

"The 10-year Treasury yield is likely to remain rangebound for the time being. Our year-end forecast is at 1.7%," Hornbach said. "The expected total return in Treasurys actually looks pretty good at this point. So, we expect money to come in and keep the market stable for the next several months."

The 10-year yield closed at 1.57% on Monday, up 71% this year.

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Why too much optimism may be the Fed meeting's biggest wildcard