Here’s the latest sign of China’s arrival as a global economic power: It’s roiled financial markets enough to nudge the Federal Reserve away from raising interest rates.
Fed policy makers left their benchmark rate near zero Thursday, saying the U.S. economy and inflation may be restrained by “recent global economic and financial developments.” Fed Chair Janet Yellen elaborated in a press briefing, saying the financial turmoil reflected investor concerns about risks to Chinese growth.
"If it weren’t for China and all the turmoil surrounding China, I think the Fed would have hiked rates," said Mickey Levy, chief economist for the Americas and Asia at Berenberg in New York, who has analyzed Fed policy for more than 30 years.
The focus on China comes after a market rout that wiped $5 trillion in value off the nation’s stocks and after a sudden move on Aug. 11 to change its exchange rate regime, a decision which triggered the yuan’s biggest depreciation in two decades and roiled global markets. The world’s second-largest economy is set to grow at its slowest pace in a quarter century this year even after five central bank interest rate cuts and fiscal stimulus.
"China was an influence in this meeting, whereas in the past that would have been much less important," said Tai Hui, chief Asia market strategist at JPMorgan Asset Management in Hong Kong.
China affects the world more than ever before, and its influence over global markets will only increase as it approaches the U.S. economy in size. It accounted for 13.3 percent of global gross domestic product last year, from less than 5 percent a decade earlier, according to World Bank data.
"China has become a bigger and bigger part of the global economy," said David Loevinger, a former China specialist at the U.S. Treasury who is now an analyst at fund manager TCW Group Inc. in Los Angeles. "It’s going to have a big impact on other economies and other countries’ monetary policies."

China Focus

Yellen acknowledged in her press conference that policy makers focused on China. "We reviewed developments in all important areas of the world, but we’re focused particularly on China and emerging markets," she said.
She said it’s still unclear how rapidly its economy will cool and how well China’s government can manage that slowdown.
"The question is whether or not there might be a risk of a more abrupt slow down than most analysts expect," she said. She also mentioned concern about the "deftness" with which policy makers were addressing the situation.
After stocks plunged from June to August, the People’s Bank of China cut rates further, devalued the yuan and lowered required reserve ratios for the biggest banks.
While inflation persistently below their target gives Fed policy makers reason to wait until they can be confident it will reach the objective, the U.S. labor market continues to strengthen, with the jobless rate falling to a seven-year low of 5.1 percent in August.
U.S. economic data might look good, but it’s the path ahead that matters, and there are now risks to the outlook, said Brian Jacobsen, who helps oversee $250 billion chief portfolio strategist for Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin.
“The Fed isn’t beholden to China,” Jacobsen said. “Global conditions matter for domestic growth and inflation. A data-dependent Fed is one that is looking ahead, not behind.”