When Federal Reserve chief Janet Yellen and her fellow policy-setters finally ended months of uncertainty and raised interest rates by a slim quarter of a percentage point in mid-December, they knew they were taking a divergent path from other major central banks.
While the Fed embarked on its first tightening cycle in nearly a decade, signalling confidence in the U.S. economic recovery, worried monetary minders in Europe, Japan, China and Canada were either loosening policy or holding fire amid deteriorating economic and trade conditions.
Now, as Fed officials wrestle with the decision of whether to continue on the tightening trail or stand pat for a while, it's becoming apparent just how wide that gulf has become.
Canada and other commodities exporters are reeling from the global slide. Most emerging economies, including those that benefit from lower import costs for resources, are getting pummelled. And cheaper energy has not proved a magic elixir for what ails Europe or Japan.
What's worse, the Chinese economy may be even shakier than it looks. The Beijing official in charge of the National Bureau of Statistics is facing an investigation for "serious violations of party discipline." Which may mean he is suspected of cooking the books or that he refused to do so.
Fed officials can't ignore the darker global outlook or the recent turmoil in financial markets. Nor are they likely to be enthralled with the recent performance of the U.S. economy, which still has some glaring weak spots. These include a manufacturing sector struggling with a strong currency and high inventories and a tough retail environment that wasn't helped by the massive winter storm that paralyzed much of the East Coast.
As a result, the dovish Ms. Yellen and her colleagues will almost certainly leave rates unchanged when their two-day meeting wraps up Wednesday while adding a note of caution about the various risks that could further delay the Fed's tightening program.
The January meeting "was always likely to be too soon for another hike," ING analysts said in a note. "Indeed, the collapse in global risk sentiment since the beginning of the year, and a softer run of U.S. data, makes even a March hike look improbable. And unless there is a strong turnaround in the data soon, the two rate hikes we have pencilled in for June and [the fourth quarter] look in need of a serious trim."
That won't make the hawks happy. They have argued that the bank should have started on the return journey to more normal policies – including a reduction of its ballooning balance sheet – soon after the financial crisis eased. Their biggest worry remains inflation, even though there's no sign of rampant price or wage hikes on the horizon.
Doves counter that the Fed moved prematurely in December and faces an embarrassing about-face as financial-market turmoil worsens and the global economy falls into another trough, hitting U.S. corporate profits.
For the most part, Ms. Yellen's counterparts are resorting to stronger language and promises of action if necessary, rather than further deploying their depleted ammunition.
That may be Ms. Yellen's best option, too. The well-telegraphed December policy shift was made in the belief a slight tightening would send the right signal to the markets but would not cause the economy to stall. Not surprisingly, it was quickly dubbed a "dovish hike."
She said the Fed would only tighten gradually and if the data warranted. "I do want to emphasize that while we've said gradual, gradual does not mean mechanical, equally timed, equally sized interest-rate changes," she said in December.
Ms. Yellen is likely to stick to that line, if only to signal that the central bank is not about to overreact to a bout of market volatility – even as it puts further hikes on the back burner.