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Federal Reserve meeting minutes released Wednesday show policymakers are focused not on the United States, but overseas. Risk abroad is what's paralyzing central bank officials, preventing them from raising U.S. interest rates, according to Ellen Zentner, chief U.S. economist at Morgan Stanley.
"This is what gives policymakers indigestion, is that something is going to knock us off track from overseas," Zentner told CNBC's Worldwide Exchange on Thursday. "And that makes it feel like it's not in our control."
Expansion in the U.S. has been strong, but the sense is that something out of China, or a U.K. exit from the European Union could drag down the economy, Zentner said.
"We've never been in this environment before," she said. "What happened outside of our borders never mattered before."
The Fed minutes from the March 16 meeting underline that global risk does matter to policymakers, she added.
"When the Fed says we're data dependent, they clarified in the minutes that that data dependency also means what's going on abroad," Zentner said, highlighting political actions, and fiscal and monetary policy. "The policymakers here are just buffeted every single day by what they have to take into account."
Multiple members of the Federal Open Market Committee said at last month's meeting that an April increase would be premature.
The dovish tone from Fed Chair Janet Yellen has had an acute effect on the dollar-yen currency pair. The yen is more than 2.5 percent higher against the greenback since the March 16 meeting. The dollar hit a 17-month low against the yen on Thursday, below the 110 level.
According to Zentner, it's the fundamental shift in policymakers' tones that's driving the moves, noting that FOMC members had pared back expectations for four rate hikes in 2016 to just two by year's end.
"That's a pretty big move for these policymakers to go from four hikes to two," Zentner said. "That has directly impacted the dollar and actually could lift growth in the second half of the year if this lower level is sustained."
Dollar weakness was a major pressure point on markets in the first six weeks of the year, Peter Boockvar, chief market analyst at The Lindsey Group, said Thursday. But the Fed's revised interest rate outlook kicked off a market rally and an upturn in commodities, he said.
"The trigger was the Fed backing off from an aggressive rate hike cycle this year," Boockvar told "Worldwide Exchange" in a separate interview Thursday.
With a boost from the Fed, U.S. equity markets have done well in the face of slowing growth abroad and recent easing from the European Central Bank and Bank of Japan.
"We've seen a major disconnect between the U.S. market and what's going on in Europe and Japan," Boocvkar said. "I don't know how much longer we can keep that gap going."
Resilience in jobs data hasn't been enough to lift corporate profits. At a macro level, Zentner said, it boils down to productivity.
"Productivity is really key to corporate profits and they just have not been growing their bottom line organically," she said. "A lot of that is tied to the fact that, yes, the consumer is moving and shaking in the U.S., but aggregate demand is still a lot lower than it was before."
Companies have been driving up profits for years by scrubbing labor costs, providing share buybacks and dividend increases, and engaging in mergers and acquisitions, according to Zentner. But she questioned at what point they will reach the end of that pipeline.
"Credit conditions are getting more difficult for corporates, and at some point productivity has got to pick up," Zentner said.