As we’ve discussed for much of the year, what else is similar between the current and 1994-1995 period?  We had an overly aggressive Fed, that tightened into a low inflation, recovering economy.  In 1995, they did an about face, cutting rates at their July meeting.  And now we head into the July Fed meeting with expectations of a 50bps cut.

On that note, we heard from the Fed just days ago, signaling that they were ready to act if conditions deteriorated.  And as I said following the meeting: “What is clear, from Powell’s press conference, is that this is all about the China trade deal.  If it drags out, sentiment continues to erode.  When sentiment erodes, the economic momentum will erode.  If that’s the case, they will be reactive, with stimulus (rate cuts and/or slowing the runoff of Treasuries on the Fed balance sheet).”

Today, Jerome Powell was again on a stage talking about monetary policy, at a conference on the Economic Outlook and Monetary Policy at the Council on Foreign Relations.  He had a prepared speech and did a Q&A.  So what message was he trying to send to markets?

He did a lot of talking.  But I suspect his posturing doesn’t matter at this point. This less about him, or the economy, and more about Trump.  If Trump were to back off the hardline demands and signal a deal with China over the weekend, the Fed would be off the hook — no rate cut.  If the meeting comes and goes, and it’s a clear kick the can down the road, or no deal –we get a cut by the Fed come July (whatever size and scope is necessary).