The minutes produced a wave of short covering in color coded Eurodollar strips well beyond the notion of "dovish." Practitioners were forced to adjust the term structure as Fed staff hinted at revamping the calculation for the Fed Effective Rate. In simple terms, The Committee desires to keep FF an important signaling tool and thus MUST solidify the Death Star spread to ensure that result.
I have been of the camp that FF role could be diminished and replaced by the RRP. The Fed has now made clear that they are NOT going to head in that direction unless forced. Instead, tweaking the Fed Effective calculation to include "other" money market TRANSACTIONS (direct hit to "old" LIBOR) will allow the S/T rate known as FF to maintain its place in the hierarchy of policy change shifts.
In practice, the management of the balance sheet will become more cumbersome. The Minutes entrench a "wide spread" between the Death Star rate and the IOER rate. The testing has run at about 20bp. Our usual radically delusional opinion has been to move the D-Star rate toward 12bp and CUT IOER toward that level. The Fed has now confirmed that they are content to solidify the spread, re-enforce FF effective and create a "sub-floor". The trick will be inducing participants to utilize the RRP facility to the tune of oh, lets say $400B/day with the spread structurally wide.
My jaded view comes down to this:
1) The Fed was mistrustful of participant and public understanding of the revamped Money System with the Fed now a long(er) term large B/S player in it.
2) They have opted to give a face lift to an old friend, Fed Funds, rather than replace it with a new and potentially nasty toy that is the RRP.
3) Back month Eurodollars (and the Tar Pit of FF futures) are adjusting and being diminished to bland consensus reflections of FOMC forward guidance with little feedback loop input.
4) The shifting, when it eventually unfolds, will not be as benign as the Fed (or its band of subsidized constituents) hopes.