The only line from the Fed minutes that matters:
Some participants commented that the recent decline in equity prices needed to be viewed in the context of overall valuation levels, which they saw as relatively high, and a couple noted that volatility had begun to subside.
During their discussion of economic conditions and monetary policy, participants indicated that they did not see the changes in asset prices during the intermeeting period as bearing significantly on their policy choice except insofar as they affected the outlook for achieving the Committee’s macroeconomic objectives and the risks associated with that outlook.
So "changes in asset prices", i.e., not only the stock market but yields and inflation expectations, did not "significantly" - so, only modestly - influence the policy choice decision "except" as to what they suggest about the outcome of said policy decision, in the process determining the Fed's decision for it.
Then again this shoudl come as no surprise: it was back in April when NY Fed head Bill Dudley admitted just this [5]:
- DUDLEY: FED RATE PATH WILL BE SHAPED PARTLY BY MKT REACTION
And just like that the Fed finally realizes the reflexive trap it finds itself in, or as former Treasury economist Bryan Carter put it [6]:
”Short-end rates move higher as the Fed gets closer to hiking, and that causes the dollar to strengthen, and that causes global funding stresses. They are creating the conditions that are causing the external environment to be weak, and then they say they can’t hike because of those same conditions that they have created.”
Which, ironically, confirms what we had joked about all along, namely that the Fed will never hike on a downtick, something the market - which has been in control of the Fed all along, and is precisely why the Fed no longer has credibility - knows all too well thanks its formalization in these minutes.
