One new phrase jumped out in the Fed statement

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The Fed didn’t budge.

On Thursday, the Federal Reserve kept its benchmark interest rates pegged at 0% to 0.25%, where they have been since December 2008.

So, effectively, not much has changed.

But there was one new phrase that jumped out in the latest statement that wasn’t in the previous statement (emphasis ours):

The Committee continues to see the risks to the outlook for economic activity and the labour market as nearly balanced, but is monitoring developments abroad.

And some analysts believe that the Fed seriously considered these “developments abroad.”

“Volatility in international markets and worries over global growth appear to have stayed the Fed’s hand,” argues to UBS global chief investment officer Mark Haefele.

When it comes to the Fed’s decisions, generally, its main concern is the US economy. 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 this time around, things are a tad different, as what’s happening abroad is materially affecting businesses that make up the US economy.

Over the summer, China has been front and center with its volatile stock market, newly devalued currency, and slowing economic metrics.

And US businesses are speaking up as reported by the Beige Book, the Fed’s collection of business anecdotes from across the US.

“Relative to the last FOMC meeting (in June), US data have provided no smoking gun in either direction. But new axes of uncertainty are emerging,” writes UBS strategist Themos Fiotakis.

“Market volatility and risks to growth associated with the economic slowdown in China. ‘China’ was a frequent reference in the Beige Book of economic conditions prepare for the September meeting.”

And as seen in the chart below from UBS, the spike in the number of China references in September’s Beige Book is noting to ignore.

“Fed policy is held hostage by events outside our borders,” Chris Rupkey, chief financial economist at MUFG, wrote in a note.

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