On the January FOMC

It’s not exactly an admission of error, but it’s the next best thing. The FOMC has dropped its Phillips Curve language – and admits that while job gains have been “strong,” inflation expectations have “declined further.” But the sudden reality that “economic growth slowed late last year” has the Fed disoriented. It removed December’s assessment that risks are “balanced” – and inadvertently forgot to say whether it thinks risks are balanced now, or not!  However, the FOMC has determined that “global economic and financial developments” will determine the balance, whatever it may be. The immediate negative market reaction is odd, as today’s statement is constructive overall. Yes, the Fed is adrift. No, it will never admit error. But it is learning, and responding.