We would like to highlight that the shift in tonality seen in the FOMC minutes most probably stems directly from the Fed core (Yellen, Fischer, Dudley, Brainard) who are doves by nature.
Following this, we have already seen some dovish shifts from Fed Kaplan and Evans.
The risk we see ahead is that the other Fed officials will have to somehow align themselves with the Fed core's "prudence" caveat, which means the implied odds of a 3rd hike in 2017 could decline further ahead.
Whilst a Jun hike is still widely expected and market implied odds have actually risen post-minutes to 87.7% (CME), our models have backtested Fed communication over the past few yrs and found something rather interesting. Over the past 2yrs, a dovish shift has not been seen directly preceding the 3 previous hikes.
Not a hard and fast rule of course and there's always a first, but the question we would pose is could the market be in for a shock come Jun with the Fed staying on hold?
At this stage, this is very much the outlier risk although worth noting. JH
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