On the January FOMC

The FOMC added the single hawkish word “further” to its long-standing statement about the gradual pace of rate hikes. At the same time, it made its most confident statement in recent memory about its ability to hit its inflation target. Markets have already built in a new rate hike over the last month, so this isn’t a true surprise. It’s not truly hawkish, because it only means the Fed will have to “further” index the funds rate as the economy improves “further” – which means policy stays right where it is now, which is at neutral. If this is the excuse for the inevitable small correction in risk-assets, it won’t take long to work through.