The Federal Reserve is completely non-partisan. Janet Yellen, the central bank’s chair, unequivocally asserted the Fed’s independence from political influences in her press conference Wednesday.

It also is a fact that the strongest impact of the Federal Open Market Committee’s signal that there are fewer interest-rate increases looming was to push the dollar sharply lower.

It also is a fact that the likely Republican nominee for president and both contenders for the Democratic nomination all have pointed to trade as what’s ailing the U.S. economy and the stagnant incomes of American workers.

In particular, Donald Trump, who remains the likely GOP candidate for the White House, has accused U.S. trading partners of currency manipulation to boost exports at the expense of U.S. jobs and wages. The Democratic front-runner, former Secretary of State Hillary Clinton, has adopted some of the anti-trade rhetoric of her challenger, Sen. Bernie Sanders of Vermont.

I want to be emphatic here: There is no evidence that the Fed has shaped its policy in accordance with politics of this presidential campaign, which is the most fractious in recent memory.

At the same time, the Fed does not operate in some vacuum sealed off from the world, let alone the winds blowing within the Washington Beltway.

In holding its current target for the federal funds rate unchanged at 0.25%-0.50%, and more importantly, by lowering the expectations for further rate hikes, the FOMC’s policy statement referred to “global economic and financial developments” not once but twice.

In its famous so-called Dot Plot graph, which charts the FOMC members’ guesses of where the fed funds rate target will be at the end of 2016, 2017 and beyond, the forecasts for this year-end and next were both lowered by 50 basis points (one-half percentage point), to 0.90% and 1.90%, respectively.

The most immediate and important implication was that the Fed is penciling in two hikes for 2016, instead of the four boosts indicated by the previous Dot Plots published after the December FOMC meeting. The expectations for the latter were bolstered further by Fed Vice Chair Stanley Fischer’s statement a month later that forecasts of four hikes in 2016 were “in the ballpark.” That added to the slide in global commodity, credit and equity markets then underway.

The fed funds futures market never bought the idea and was placing just a 50% probability of a single hike and only then in December while markets were in retreat in January and early February. Those declines effectively acted as a credit tightening, obviating the need for Fed action.

Since then, however, with some better jobs numbers and crude oil’s recovery from its low leading risk markets higher in the past five weeks, fed funds futures had begun to price in the possibility of two rate hikes. A June move was seen as an even-money bet with one-in-three chances of a second hike in December.

Short-term Treasury yields similarly rose with the odds of more Fed hikes. The two-year note, which traded below 70 basis points when the stock, oil and junk-bond markets were in full retreat back in January and early February, jumped to just over 1% ahead of the FOMC announcement Wednesday at 2 PM EDT. After the maturity most acutely attuned to Fed expectations saw its yield plunge an extraordinary 14 basis points by close, to 86 basis points.

Far more importantly, the greenback fell sharply as a result. The U.S. Dollar Index plunged 1%, about twice as much as the U.S. stock market rose in reaction to the Fed’s move.

What’s more, the Fed backed away from more rate hikes just as inflation is picking up. The previous shortfall from the central bank’s 2% inflation target has been a major factor in keeping policy ultra-accommodative—even as the jobless rate has fallen below 5%, which the Fed has deemed full employment or nearly so.

Torsten Slok, chief international economist at Deutsche Bank, wonders in an exchange of emails about the Fed’s apparent worry about the rest of the world when U.S. prices are moving up, which he calls “a significant deviation from their previous view that they would move once inflation was moving toward 2%.”
While the consumer price index fell 0.2% in February, owing to continued declines in fuel prices (which since has that have begun to reverse), the core CPI excluding food and energy rose 0.3%. On a year-on-year basis, core CPI is up 2.3%. To be sure, the Fed tracks a different inflation measure, the personal consumption expenditure deflator, which remains below the Fed’s target. But, Slok points out, the trend is clearly higher in any number of other price gauges.

So, why the continued emphasis on “global economic and financial developments” when U.S. official data show full employment and rising inflation?

Slok observes the U.S. has fared better than other economies owing to the “resilience” of its economy and the flexibility of its labor force. At the same time, the U.S. economy is less shielded from international influences than the numbers imply.

The political season suggests that flexibility is becoming strained. Trade is one of the targets of Americans’ frustration over stagnant or worsening standards of living, thus making an easy target of political candidates.
Arguments in favor of free trade and comparative advantage, voiced by adherents of classical free-market principles going back to David Riccardo, are shouted down by calls for retaliation against other nations.

Donald rails against currency manipulation by U.S. trading partners. Bernie argues against trade pacts he says hurts U.S. workers. Hillary joins in the criticism even though husband Bill’s administration saw the economy soar by backing free trade, achieving a balanced budget and asserting U.S. policy for a strong dollar.

Times are different. A strong dollar now is seen as being on the losing end of a currency war.

None of the presidential contenders want to endorse that.

Rather than escalate that conflict, the Fed’s decision to hold rates steady and suggest fewer increases down the line has the practical effect of not worsening the trade tensions that figure importantly in this most contentious political seasons. It may not have been the FOMC’s explicit intent but that is the effect of its decisión.