Fed may delay hikes if core inflation continues to decline this year

The FOMC dot plot released last week showed the apparent convergence of participants' views on the medium-term rates outlook. 

All but two participants project Fed hikes by the year-end, with a large cluster (41%) projecting exactly two hikes. 

On the surface, this seems to indicate the Fed is almost certain to start normalizing rates this year. And the rates market seems to think so. 

BofA Merrill Lynch notes ....

• We argue the market underestimates the likelihood of no Fed hikes this year given inherent uncertainty in inflation dynamics.
  
  
• We believe it may be difficult for the Fed to start hikes if core inflation continues to decline this year.
  
  
• We recommend buying 1x2 call spreads on December Eurodollar futures financed with OTM puts