The minutes of the January meeting of the FOMC were released overnight and they showed that the US Fed was watching global events unfold and were slightly concerned about tighter global financial conditions. “If the recent tightening of global financial conditions was sustained, it could be a factor amplifying downside risks.” The tightening of conditions was perhaps “roughly equivalent” of a de-facto monetary policy tightening.
The Fed was watching the greater-than-expected slowdown in China and emerging market economies trying to calculate whether there would be a “potential drag on the US economy” that may cause it to raise rates at a slower pace than anticipated.
The Fed raised interest rates in December for the first time in nearly a decade and it has indicated it expects to raise rates gradually in 2016 as the US economy picks up. Markets are fixated on the timing of any rate raises and scrutinise the Fed minutes for any minor change in the language used.