FOMC Minutes: Uncertainty was the key factor for dovish shift - TDS

Analysts at TD Securities note that the last night’s FOMC meeting Minutes revealed uncertainty was the key factor in the Fed's dovish shift, rather than a materially weaker outlook.

Key Quotes

“Low inflation was bumped up in the list of worries and sparked a debate about additional hikes.”

“Conversely, the balance sheet discussion was more dovish for markets. "Almost all" participants in January thought the Fed should, "before too long," announce a plan to stop runoff "later this year." Our base case has been for a June end to runoff, given the stated desire to maintain a buffer on excess reserves.”

“Both linear and nonlinear rates market reacted tamely as, relative to market expectations, the minutes were modestly less dovish on the rate front but more dovish on the balance sheet front.”

“The mostly dovish signal on the balance sheet should keep the USD on the back foot. It lends further support to global reach-for-yield and should also reinforce topside resistance in the DXY. Fed speak has mostly telegraphed this shift, leading to some modest retracement in the FX market on the release, but nothing here should arrest the recent pullback in the buck.”