The Fed just put global financial markets on notice

The Fed didn’t budge.

On Wednesday, the Federal Reserve kept its benchmark interest rates pegged at 0.25% to 0.50% — as was expected.

So, effectively, not much has changed.

But the Fed made a key change to make clear that it would be “closely monitoring developments in global financial markets.”

Here’s the key sentence:

The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labour market and inflation, and for the balance of risks to the outlook.

The Fed also said it will keep an eye on international developments as it examines the possibility for raising rates in the future:

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realised and expected economic conditions relative to its objectives of maximum employment and 2 per cent inflation. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

When it comes to the Fed’s decisions, generally, its main concern is the US economy. So, often we don’t hear much about its thoughts on what’s going on overseas except for a few mentions in the Minutes from each meeting, released three weeks after the initial statement.

But it looks like the Fed is once again eyeing what’s happening abroad as it is materially affecting businesses that make up the US economy.

Notably, the Fed first included language about “monitoring developments abroad” back in September after a rocky summer. (Although they subsequently took it out in December.)

So now, given that the markets were quite volatile in January and various big US businesses such as Apple pointed in “softness” abroad, it’s not entirely surprising that the Fed again included such a reference.

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