Six years ago, almost to the day, there was an ebb and flow of U.S./China trade negotiations. The Fed was stubbornly holding rates high in the face of falling (sub 2%) inflation with a monetary policy meeting approaching. The U.S. was executing a "maximum pressure" campaign on Iran. And Iran was threatening to choke off 20% of global oil trade in the Strait of Hormuz.
So, this June rhymes.
What doesn't rhyme is the way the Fed viewed trade policy uncertainty, at the time.
In 2019, they viewed it as a downside risk to growth — demand destruction with deflationary pressures.
That ultimately resulted in the Fed's dovish pivot in June. And then a rate cut in July.
Among the reasons cited, disappointing foreign growth, "notably in the euro area and China."
Fast forward six years, and the economies in Europe and China are both weaker than they were in 2019.
Inflation has fallen to a tenth of a point from the Fed's 2% target.
And yet this time, the Fed sees trade uncertainty as inflationary — a potential supply shock, not a demand one.
How wrong might they be?
Six years ago, the first rate cut, was followed by a second, a third, the ending of quantitative tightening and the beginning of another round of balance sheet expansion (i.e. a return to quantitative easing) — all of it within four months.