At the press conference following the January 29-30 Federal Open Market Committee meeting Fed Chair Jerome Powell stated that members "believe that our current policy is appropriate at this time". Only 6 weeks before at the press conference in December Mr. Powell stated that members believe "the economy will grow in a way that will call for two interest rate increases over the course of next year."

It is hard to recall a major shift in policy communication in such a short time without a major change in the economic outlook. And Mr. Powell description of the economic environment and outlook suggests the change in communication was not linked to a change in policymaker's economic forecast.

To be sure, Mr. Powell indicated that the "jobs picture remains strong, with the unemployment rate near record lows, and with stronger wage gains." Also, Mr. Powell indicated that "inflation remains near our 2% goal" and that policymakers "expect that the American economy will grow at a solid pace in 2019", although somewhat less than in 2018.

Mr. Powell indicated that monetary policy is "data dependent" and policymakers will be patient before making any further changes in the current stance of official rates. Yet, in light of the exceptionally strong employment and production data the shift in policy communication appears to be more of a reaction to the volatility in the financial markets rather than any material change in the real economy.

All of this raises questions over what changes in the real economy or in the financial markets would trigger another change in the Fed's thinking. During the Q&A part of the press conference the Fed Chair stated "I would want to see a need for further rate increases."

Mr. Powell hinted that an uptick inflation could cause the Fed to rethink its policy stance. However, the core inflation scorecard does not offer the same "inflation clarity" or the risks to the economy as it did in the past. In fact, today's core inflation rate is almost identical to the rate of inflation that was in place prior to the start of the last two downturns.

Risks to the economy are once again centered in elevated financial balances. Today the market value of real and financial asset values relative to income and output exceed the levels that were in place prior to the tech-equity and housing bubbles.

Thus, the risk management approach to monetary policy suggests it would be prudent for policymakers to place as much emphasis on financial stability as they do on price stability. In other words, its the Asset (price) curve and not the Phillips (price) curve that has become most important. Yet, by pausing monetary policy is encouraging if not accommodating even more asset inflation and in the process raising the risk of a hard landing at some point.