Asian markets - Singapore, Japan and Malaysia noticeably excepted - ticked up on news of the US Federal Reserve's latest decision. It kept the key funds rate range unchanged at between zero and 0.25 per cent, holding rates to the level they were slashed to seven years ago during the global financial crisis. Did these markets pick on the wrong cues? Wall Street's nervousness, evident in a near 2 per cent fall in the index, with all component stocks falling on Friday, was perhaps a more appropriate reaction.
The bigger consideration ought to be the interconnectedness of economies. The telling words from Fed chair Janet Yellen are the "heightened uncertainties abroad and slightly softer expected path to inflation". Dr Yellen referred to China directly six times (in contrast to previous Fed comments that hardly mentioned world concerns) and one should also bear in mind International Monetary Fund chief Christine Lagarde's recent warning that Asia's growth is "turning out slower than expected - with the risk it may slow even further". These factors could scrunch the growth in the United States indicated by the winding down of inventories and a job market that is at a level that, in the US, is considered "full employment".
These conflicting considerations had weighed on whether rates should be held or raised. It's true inflation is not near the targeted 2 per cent but the American economy is steadily expanding and the Fed has to take into account the usual time lag for policies to be reflected in the numbers. Any slowness to act could lead to overheating and any undue delay might mean having to slam on the brakes later.
Given the interlinked nature of global economic performance, the Fed was right to keep a weather eye on external conditions, rather than be driven by domestic considerations alone. Ironically, that very caution has poised the markets for another round of weary unpredictability as they speculate on when and whether the US, which has been in expansionary fiscal policy mode for nearly a decade, will finally reverse course. The Fed statement indicates that a majority of its members expect a rate rise to be propitious before the year-end.
A remarkable fact of last week's excitement, centred on the Fed, is how much the US has recovered ground since the global financial crisis, when many thought they were seeing the end of America's primacy. The IMF's latest World Economic Outlook puts US gross domestic product in 2015 at US$18 trillion (S$25 trillion), nearly a quarter higher than seven years ago. China's economy is projected at US$11 trillion, still a fair distance from the US. Clearly, there's still only one true central banker to the world, and her office is in Washington. Equally, there's no single engine of growth that can determine the global economy's fate.