China is not our friend FED....

Here was the play-by-play of the Fed decision and Yellen press conference

September 17, 2015, 12:52 PM ET

Reuters

Federal Reserve Chairwoman Janet Yellen

MarketWatch’s Rex Nutting and Bill Watts live-blogged the Fed decision and the press conference from Fed chief Janet Yellen.

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Also read: Market Snapshot | Fed opts not to raise interest rates over China concerns

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• • 1:36 pm
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  • Summary: Fed spooked by global events
  • by Rex Nutting
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  The Federal Reserve thinks the U.S. economy is doing OK, but the global economy is a different matter. And that’s why the Fed held rates steady today.

  If it were just a matter of looking at the U.S. jobs and inflation data, the Fed probably would have raised interest rates today. Fed Chairwoman Janet Yellen made it clear in her press conference that the labor market is close to full employment, and that she’s reasonably confident that the inflation rate will drift back up to around 2% eventually.

  When asked specifically about the undershooting on inflation, Yellen said she and her colleagues aren’t too worried. Inflation will be very low this year, true, but it will inevitably accelerate next year as the labor market tightens further and the impact of a stronger dollar dissipates.

  They could be wrong about inflation, of course, but for now Fed officials appear to be reasonably confident that disinflation won’t persist, and that means they’re still on course to raise rates this year.

  More jobs and expectations of  slightly higher inflation were the preconditions for the first rate hike. So what happened?

  Turmoil overseas, especially in China, where authorities seem to be bungling the soft landing that everyone assumed was coming.

  Lower demand from China means falling prices and weaker growth in countries that produce raw materials, such as oil, metals and other commodities. In turn, the dollar has appreciated, bringing deflationary forces to the U.S. and weakening our competitiveness in exports, especially manufactured goods.

  So far, Fed officials aren’t overly concerned about global developments. They are still confident that the troubles won’t change the trajectory of the U.S. economy too much.

  In the grand scheme of things, it doesn’t matter too much if the Fed raises rates now or in October or December. But it’s possible that the global headwinds will grow. What if the dollar is even stronger in October? What if there’s more blowback in the U.S. stock market, or in the exchange rate of the dollar or if commodity prices melt down further?

  Fed officials can’t say what they will do next until they see how economic and financial events unfold. 

  The unemployment rate and the inflation rate are no longer the triggers for Fed action. Instead, it’s the Shanghai market, the price of oil, the value of the dollar, and the stability of dozens of economies that will tell the Fed when it’s safe to raise rates.

  Be prepared for more volatility, uncertainty and speculation.