The Fed Reaction Function Confuses People, as Usual: Macro Man

Another Fed meeting brings another suite of policy decisions for the market sift through. These days it feels like the number of variables keeps increasing; beyond the actual rate decision and the tone of the statement, there is the dot plot, the economic forecasts, and the reaction function derived from combining the two, as well as the distribution of the dots given that dissents now seem to be a regular feature of these decisions. There is also the Fed’s balance-sheet management to consider, and the FOMC is kick-starting bill purchases this week to ensure that reserves don’t fall below the ...