Having hiked in June amid gravely disappointing macroeconomic data, all eyes are now on the minutes for inflation (weakness blamed on "idiosyncratic factors"), labor market (concerns about "sustained employment undershoot"), balance sheet normalization (Fed "divided" over when to start), and market valuation concerns ("equity market high on standard metrics"). Rate hike odds for Sept (22%) and Dec (56%) were rising into the release.

Additional headlines...

• *FED OFFICIALS DIVIDED OVER WHEN TO START BALANCE-SHEET RUNOFF
• *FED OFFICIALS REPEATED SUPPORT FOR GRADUAL INTEREST-RATE HIKES
• *A FEW FED OFFICIALS SAW EQUITY PRICES HIGH ON STANDARD METRICS
• *FED OFFICIALS NOTED FINANCIAL CONDITIONS EASED DESPITE HIKES
• *A FEW OFFICIALS SAW LOW VOLATILITY STOKING RISKS TO STABILITY
• *MOST FED OFFICIALS BLAMED SOFT PRICES ON IDIOSYNCRATIC FACTORS
• *FED DEBATED PROS, CONS OF SUSTAINED UNEMPLOYMENT UNDERSHOOT

As Bloomberg Intelligence noted, financial stability concerns appear to be very high on policymakers’ radar and seem to be pushing the Fed’s hand to continue to gradually tighten policy.

Some participants suggested that increased risk tolerance among investors might be contributing to elevated asset prices more broadly;

a few participants expressed concern that subdued market volatility, coupled with a low equity premium, could lead to a buildup of risks to financial stability.

As for the balance sheet, a September kickoff for the program is what traders widely expect. Any delay may affect calculations on the next rate hike (expected in December) and it may signal the Fed is worried about roiling markets, which ironically, may roil markets.

"A few of these participants also suggested that a near-term change to reinvestment policy could be misinterpreted as signifying that the Committee had shifted toward a less gradual approach to overall policy normalization."

“Several preferred to announce a start to the process within a couple of months,” the minutes showed. “Some others emphasized that deferring the decision until later in the year would permit additional time to assess the outlook for economic activity and inflation.”

On C&I Loan growth...

Commercial and industrial loans outstanding increased in April and May after being weak in the first quarter, al­though the growth of these loans remained well below the pace seen a year ago. Issuance of both corporate debt and equity was strong. Gross issuance of institutional leveraged loans was solid in April and May, al­though it receded from the near-record levels seen over the previous two months.

*  *  *

Since the Fed hiked rates in June, the Treasury curve is flatter, FANG Stocks are down, and gold has been hit hard...

September hike odds have tumbled since June but December has risen to 42%...

Several Fed members noted "somewhat rich" asset valuations... Indeed, during the history of the stock market, it has only traded at a richer valuation during one period - June 1997 to September 2001 - as the dotcom farce blew and burst. Historical data for the index is available going back to 1881.

No matter what The Fed said, they have some large maturities to deal with very soon...

Full Minutes below: