Donald Trump's reported musings about whether he could fire the Federal Reserve chairman eclipsed an important signal from the central bank last week.
Those who perused December's interest-rate documents were focused on why the "dot plots" projected two hikes next year and why the Fed didn't abandon forward guidance. A stock-market swoon and hesitant press conference from Chairman Jerome Powell added to the sense that policymakers had fumbled.
The almost forgotten reappearance of one phrase gives hope to those seeking a more cautious Fed in 2019. When Trump finds another target for his Twitter missiles, those extra words may gain more prominence.
A reference to monitoring "global economic and financial developments" and their implications was tucked into the second paragraph of the Federal Open Market Committee's Dec. 19 statement. That's the first such reference during Powell's term that began in February and the only instance since mid-2017.
There is normally a bromide nod to "international developments" toward the end of the statement, just before the committee's roll call. That boilerplate stayed. The addition of global concerns to the second of four paragraphs is significant.
This might all sound too microscopic, a parody of monetary Kremlinology. But the second paragraph matters because it contains the Fed's view of where the balance of risks lies and the forward guidance, the way the central bank conveys the intended path of policy. In some ways, because policy has become more telegraphed, that second paragraph matters more than the third, which contains the actual adjustment – or not – to the benchmark interest rate.
The implication is that events beyond America's shores are rightly taking on an elevated and, for now, subtly more visible role in Fed deliberations.
The Fed's formal mandate of stable U.S. prices and maximum employment obscures, but doesn't diminish, the institution's informal role as central banker to the planet. China's rise, for all its superlatives, isn't close to altering this.
In practice, the linguistic shift means that the Fed will be thinking about Europe and Asia alongside its focus on America. The U.S. economy, as strong as it has been the past couple of years, isn't an oasis. Because commerce is so connected – yes, in spite of all the talk about deglobalization – America can't just carry on willy-nilly. Its gross domestic product is greater than others', but that margin has been chipped away over the past decade. The main cause for concern, aside from Trump's war on the Fed's independence, is the performance of economies overseas.
The U.S. expansion is cooling, but far from collapsing. Consumers are spending freely despite a sharp decline in the stock market and a government shutdown. Amazon.com reported a record holiday season. Mastercard said festive-season sales rose 5.1 percent between November 1 and December 24. The jobless rate is a basement-level 3.7 per cent.
The Fed has hit the pause button before in response to external disappointments and, in some instances, gone into reverse. In 2015 and 2016, the Fed raised rates only one time in each of those years, bucking its projections of multiple moves. The culprit was angst about China and Europe. During the late 1990s, the Fed did eventually alter course in response to crises in Asia, Russia and Latin America. That in spite of the long boom that characterized that decade.
Seemingly small linguistic adjustments might seem trivial when the stock market's bull run is slowing. But those small signals portend big moves. The Fed's long-awaited pause may come sooner rather than later.