For a meeting at which nothing happened, the March 16 gathering of the Federal Open Market Committee was rather eventful. The panel, as expected, voted to keep interest rates steady. Indeed, it would have been a major surprise had the Federal Reserve's rate-setting arm decided to continue its path of monetary tightening. But an unexpected development that came out of the meeting was new guidance on expected rate hikes for the rest of the year. The Fed, which earlier had announced expectations of four rate increases throughout 2016, now says it expects to make only two. This announcement had a dramatic effect on the dollar, dropping it to a five-month low.

The guidance shift ran counter to general thinking. Recent data shows a relatively strong U.S. economy with employment in particular holding up well. As a result, markets were expecting a hawkish meeting, but they got the opposite. It was this sudden dose of reality that drove the strong effect on the dollar.

The reason for this abrupt change of direction, which did not seem to match the trajectory of the U.S. economy, rests specifically on the effects that the Fed's previous actions had globally. On Dec. 17, the Fed raised interest rates for the first time in nearly a decade. The dollar had been strengthening for 18 months in expectation of the move, but it was nevertheless a landmark for the global economy, since it represented a divergence among the paths of the world's largest central banks. Volatility was expected.

The nature of that volatility, however, might have taken the Fed somewhat by surprise in that its conduit was China. During summer 2015, the strengthening dollar played a large part in forcing China to begin to break its currency peg. The yuan had begun to weaken in expectation of the Fed's December rate hike, and the prospect of an even tighter U.S. monetary policy sent it spiraling further as the gap between the currencies began to yaw.

This drop unnerved markets going into January for two reasons. First, it created the prospect that the Chinese currency would join others around the world in a sustained tumble, making the dollar suddenly look very lonely as the only currency standing tall while all others were faltering either by choice or by circumstance. The second was that China saw a sharp increase in the pace of its currency reserve outflows as it tried to make up for debt repayments that had been triggered by the strong dollar as well as capital flight as investors smelled danger. The prospect of seeing the world's second-largest economy burn through its rainy-day money at high speed spooked markets. The first six weeks of the year were marked by a major asset selloff across the spectrum as investors fled for the hills. Most worryingly, banks bore the brunt of the panic, as various setbacks, combined with a wave of comment about how harmful negative interest rates were to a bank's profitability, sent banking share prices down. In countries such as Italy, possessing weak banks and high debt, this was particularly dangerous.

The whirlwind did not last long, however, as the dollar began to weaken in February after new data painted a gloomier picture for the U.S. economy and as energy prices found a floor. (The weaker the economy looks, the less likely the tightening cycle becomes.) The latter development likely buoyed the currencies of commodities exporters who had previously been on a downward slope, weakening the dollar in relative terms. And as suddenly as it had started, the economic hurricane appeared to dissipate. Asset prices recovered, and the rate of Chinese foreign reserve depletion slowed, dropping to $30 billion in February compared to more than $100 billion in each of the previous two months, as China also began implementing currency stabilization measures. The world breathed a sigh of relief.

This experience revealed to the Fed the key to an easy life: Keep the dollar weaker, and there will not be such pressure to devalue the yuan, and China will not have to spend foreign exchange reserves to defend it. The markets will not panic and the jeopardy on banking systems will therefore be eased. In the case of the Italian banks, the European Central Bank helped by introducing a package designed to improve euro-area banks' financial positions. In her March 16 statements announcing the Fed's position, Chairwoman Janet Yellen specifically cited external risks as a motivating force.

But this shift in policy is not a permanent fix; it merely buys some time for other players, specifically China, to get their houses in order. The Fed is tasked with administering the U.S. economy, and as such that is its primary responsibility. As Yellen observed, U.S. employment remains strong but structural labor issues persist, and accelerating inflation remains a risk. Keeping interest rates lower than they should be in order to restrain the dollar runs the risk of unleashing higher prices. Thus, an argument could be made that the Federal Reserve is going against its mandate and putting the global economy before its own, a possibility that has long been a risk with the dollar's utter dominance in many places around the world.

The counterargument would be that the rollercoaster ride the world economy took at the start of the year hit U.S. stocks as well, so in this case, the interests of the U.S. and global economies aligned. Either way, the Fed's forced dovish posture is unlikely to be sustainable and will end in one of two outcomes. Either the U.S. economy will slow naturally, moving to reflect the new pace of rate hikes. Or, the increasing threat of inflation will force the Fed to abandon its newfound position and hasten its tightening cycle once more (a June rate hike still looks likely either way). If the second scenario comes to pass, and comes soon, the whirlwind from the beginning of the year could well spring back to life.