The U.S. Federal Reserve reversed course this week, holding interest rates steady and declaring that the economic outlook demanded more "patience" from policymakers. This is a stark contrast with the Fed's sentiment at its last meeting; then, it raised interest rates and signaled that more were likely given a strong global economy. This week's decision is an accurate reflection of changing economic conditions and the Fed's flexibility is to be applauded. That should not go too far, however: Overall economic conditions, and not market sentiment, should be the Fed's guiding light. Some fear that is not the case.

When the Fed last met six weeks ago, it had a bullish take on the global outlook. It agreed to a quarter-point rise in interest rates and signaled that at least two more increases were to be expected in 2019 given those economic fundamentals. While that triggered complaints from markets and U.S. President Donald Trump, the decision made sense: The economy was running strong and there were few headwinds. Raising rates, and continuing to unwind the holdings on its massive $4 trillion balance sheet, gave the Fed room to intervene if conditions deteriorate.

In the intervening time, conditions have changed, and the Fed has indicated it is prepared to respond to them. Speaking after this week's meeting, Fed Chairman Jerome Powell explained that the economy remained strong — an optimistic assessment after the historical five-week government shutdown and the continuing political gridlock that produced it — but other "cross currents" were concerning. He pointed to slower growth in Europe and China, uncertainty created by the trade war between the United States and China, the world's two largest economies, and Brexit. Combined with low inflation at home, those factors "weakened somewhat" the case for raising rates and demanded a "wait and see" approach.