The latest escalation in the trade war ups the odds the economy will fall into recession and that the Fed will aggressively cut rates.
where investors look for more yield on shorter term securities, has been a fairly reliable recession warning.
"I think the Fed was prepared to ease in September. This locks that in. I suppose if things deteriorate enough, we start asking do they do 50 basis points instead of 25," said Gapen. Citigroup global economist Cesar Rojas said it's possible Trump's tweet threats could be a precursor to a much more intense phase of the trade wars, which would be even more damaging to both economies.
"I think businesses are already on the edge," Zandi said. "If the president pushes this, they'll go over the edge. It will be too much to bear. They are right now sitting on their hands. But if the president goes much further, they're going to start cutting, and laying off workers. That's recession. Manufacturers are already in recession."
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