There is a risk that the intensification of international cross currents could weigh more heavily on U.S. demand directly, or that the anticipation of a sharper divergence in U.S. policy could impose restraint through additional tightening of financial conditions. For these reasons, I view the risks to the economic outlook as tilted to the downside. The downside risks make a strong case for continuing to carefully nurture the U.S. recovery--and argue against prematurely taking away the support that has been so critical to its vitality.
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Although the outlook for domestic demand is good, global forces are weighing on net exports and inflation, and the risks from abroad appear tilted to the downside. Our economy has made good progress toward full employment, but sluggish wage growth suggests there is some room to go, and inflation has remained persistently below our target. With equilibrium real interest rates likely to remain low for some time and policy options that are more limited if conditions deteriorate than if they accelerate, risk-management considerations counsel a stance of waiting to see if the risks to the outlook diminish.

The decision not to raise the interest rate in September has generated a great deal of discussion at this meeting of the IMF and World Bank and elsewhere. The decision was based, in part, on a desire to have more time to appraise recent developments in the global economy, especially those originating in the Chinese economy, before beginning the normalization of interest rates. There may well have been more comments on foreign economic developments in recent FOMC statements than was common in the past. That is natural given the increasing influence of foreign economic developments on the United States economy, both through imports and exports, and through capital account developments.

The September statement notes that we are monitoring developments abroad. Nonetheless, we do not currently anticipate that the effects of these recent developments on the U.S. economy will prove to be large enough to have a significant effect on the path for policy.

Williams said "we’re not going to get clarity, but we are getting some information,” about how the global economy is developing before the end of the year. Recent data from China show that the nation is on "a little bit of a bumpy part of their ride" but "seems to be able to get back onto growth that people were expecting before,” he told reporters.

"On the global side, I’m not seeing any obvious signs that those risks that were on my mind and the minds of others, I don’t see signs that those have gotten worse,” Williams, a voting member on the Fed’s policy committee this year, said in Salt Lake City on Thursday. He was answering questions from the audience after delivering a speech.

“There’s always going to be risks, there’s always going to be uncertainties,” he said. Even so, “we’re going to have to take actions that we think are the appropriate ones given our goals.”

"China is slowing to still a very respectable pace of growth. It is ratcheting down a little bit, but there is a decent chance that the world is overreacting," [Lockhart] said.

"Markets should appreciate that the likelihood of substantial spillover to the U.S. domestic economy from developments abroad...is likely to be small.”

Developments in China appeared to have heightened uncertainty regarding future economic growth and macroeconomic policy there, which seems to have prompted higher financial market volatility in developed market economies. At times of market turbulence one must maintain a deep respect for the divergent ways in which events could conceivably unfold, and thus I will not pretend I can foretell the future.

Nevertheless, it is worth observing that the direct implications of recent developments for economic fundamentals in the United States appear to be quite limited. If so, then recent market developments will have only limited implications for the appropriate path of monetary policy. This might seem to contradict widespread conjecture about the Fed delaying liftoff due to market turbulence. But I would point out that the Fed has a history of overreacting to financial market movements that seem unconnected to economic fundamentals. The events of 1998-99 are a case in point, when financial developments in emerging markets generated substantial U.S. market volatility despite limited identifiable implications for U.S. growth. The FOMC cut rates three times but ended up taking back those cuts the following year.

It is a tragedy for Greece that it finds itself on the brink of an even more severe financial crisis and further economic turmoil. But it can perhaps be heard as a soothing chorus that the direct exposure of foreign investors is relatively limited, and the European Central Bank appears to have the means and will to limit the financial fallout that could affect the rest of the euro area. While a worst-case scenario of a Greek exit from the euro leading to sizable financial and economic impacts on the global economy cannot be ruled out, it remains an unlikely tail risk.

I would say that the United States has very limited direct exposure to Greece, either through trade or financial channels, but to the extent that there are impacts on the euro-area economy or on global financial markets, there would undoubtedly be spillovers to the United States that would affect our outlook as well.

"I'm one that thinks that Greece could exit, and it could be handled in an appropriate way without causing too much damage, either in Europe or in the U.S.," St. Louis Federal Reserve Bank President James Bullard told Reuters.

“We’re seeing a flight to quality,” said Fisher, who called the U.S. “the best-looking horse in the glue factory.”

Technological progress, along with the transition to greater labor force participation in emerging and developing economies has probably served to keep inflation low in many other countries and has served to increase the rate of growth in potential output globally. But the rapid growth in the market sectors of emerging and developing economies may also contribute to more rapid growth in global demand and inflation pressures. This changing configuration of world markets complicates the task of forecasting inflation and output within national economies.

Energy prices have surprised us over the past few years, in terms of the extent of the rise in prices, the increase in volatility, and the limited negative effects to date on global economic growth. Our capacity to project future energy prices has proven to be very limited, as has our ability to convincingly ascertain the extent to which temporary supply factors, rather than an unrecognized strength in global demand, accounts for the energy price trajectory we've witnessed recently.

The key question going forward is whether the restraint building from the turmoil in Asia will be sufficient to check inflationary tendencies that might otherwise result from the strength of domestic spending and tightening labor markets. The depth of the adjustment abroad will depend on the extent of weakness in the financial sectors of Asian economies and the speed with which structural inefficiencies in the financial and nonfinancial sectors of those economies are corrected.