It's become abundantly evident that domestic U.S. data alonedon't dictate the Federal Reserve's stance.

Global economic data and gyrations in financial markets also influence monetary policymaker's assessment of the outlook for inflation and employment in the U.S.

Fed Chair Janet Yellen's speech at the Economic Club of New York on Tuesday reinforced that the central bank places a great weight on these market and international variables—and Deutsche Bank AG Chief International Economist Torsten Slok has a chart that shows just how worried the Fed is about the rest of the world:

"It is clear that the rest of the world is playing a more and more important role in Fed policy," wrote Slok. "Time will tell if this is an appropriate strategy."

Risk assets responded positively to the Fed's emphasis on the underwhelming global economic backdrop, with market-based measures of inflation compensation, stocks, and commodities all catching a bid upon the release of Yellen's remarks.

"To illustrate why the Fed's clear shift to a more dovish stance is so effective in reducing uncertainties in financial markets, consider our recent survey of U.S. credit investors," explained Hans Mikkelsen, head of high grade credit strategy at Bank of America Merrill Lynch. "Arguably at least three—if not all—of the top-four investor concerns—China, oil prices, geopolitical risk and slow recovery—are mitigated to some extent by the more dovish Fed."

Yellen alluded to this reflexivity between markets and the Fed in molding the economic outlook in Tuesday's speech.

David Fuller's view

Some economic commentators are not happy that global GDP and the markets are leading the Fed.  They feel that the Fed should be focussing solely on the US economy. 

That would be fine if the US economy existed in a goldfish bowl and had little interest in the rest of the world.  However, the global economy has never been more multinational.  The US is one of the top-two participants in international trade, which is good for global economic GDP growth over the longer term.  Mutual interests of trading also reduce risks of military conflicts among major nations.

Meanwhile, Janet Yellen’s sensibly restrained hand regarding US interest rates at a time of widespread concerns over global GDP growth has temporarily revived stock market rallies seen since mid-February.  This may own more to renewed short covering than investor demand at these levels.  Nevertheless, breaks beneath recent reaction lows are now required to provide renewed evidence that overhead resistance for most rangebound stock market indices was regaining the upper hand.