The fear was that a too-hawkish Fed could put emerging economies at further risk, and this could ultimately depress global economic growth. But perhaps more ominously, the billions in dollar-denominated debt that had been issued by entities in emerging countries would become much more difficult to service or refinance in the event of further capital flight. We suspect that the Fed's fears about conditions outside the U.S., including the increasing competitive currency devaluations, played a role in the decision to hold off today.
But none of those factors, however valid and impactful they may be, held the power to push Fed Chair Janet Yellen over the line to raise rates. The one factor that held that power was the recent volatility (read: "selloff") in the stock prices. Simply put, the Fed still places far too much importance on the stock market as a tool for priming the economic pump.
The 10-percent selloff in U.S. stocks, and the much greater selloffs in China and other emerging markets, was THE factor that provided cover for the Fed's decision today. To me, though, the capital-markets volatility we have seen in recent months represents the downside to an ill-conceived policy of targeting stock prices as a way to spur economic growth. The Fed's explicit strategy all along has been to boost household wealth through stock and housing gains, hopefully causing a trickle-down effect. Now, heavily committed to that strategy, the Fed believes that if it moves to soon to tighten, it will risk reversing some of those (perceived) hard-fought asset-price gains.