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Animals thrive in a constantly changing environment and leverage the temporal structure to learn well-factorized causal representations. In contrast, traditional neural networks suffer from forgetting in changing environments and many methods have been proposed to limit forgetting with different trade-offs. Inspired by the brain thalamocortical circuit, we introduce a simple algorithm that uses optimization at inference time to generate internal representations of the current task dynamically. The algorithm alternates between updating the model weights and a latent task embedding, allowing the agent to parse the stream of temporal experience into discrete events and organize learning about them. On a continual learning benchmark, it achieves competitive end average accuracy by mitigating forgetting, but importantly, by requiring the model to adapt through latent updates, it organizes knowledge into flexible structures with a cognitive interface to control them. Tasks later in the sequence can be solved through knowledge transfer as they become reachable within the well-factorized latent space. The algorithm meets many of the desiderata of an ideal continually learning agent in open-ended environments, and its simplicity suggests fundamental computations in circuits with abundant feedback control loops such as the thalamocortical circuits in the brain.