Trump's new tariffs may set stage for more Fed rate cuts


By Ann Saphir and Richard Leong
Friday, August 2, 2019

U.S. President Donald Trump's surprise move on Thursday to impose new tariffs on Chinese imports has thrown the Federal Reserve another curveball that may force the central bank to cut interest rates more than it had hoped was necessary to protect the U.S. economy from trade-policy risks.

In a series of tweets, Trump said he will slap 10% tariffs on $300 billion of Chinese imports starting Sept. 1, saying he was unsatisfied with the pace of trade negotiations between the two superpowers.

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Some $250 billion of Chinese imports are already subject to a 25% duty aimed at pressuring the world's second biggest economy to strike a trade deal.

The president's mid-afternoon bombshell sent stock markets tumbling and Treasury bond yields plunging to their lowest levels in nearly three years.

It unleashed frantic buying in interest rate futures markets that 24 hours earlier had been scarred by Fed Chair Jerome Powell's indication that Wednesday's quarter percentage point interest rate cut - the first since the financial crisis - was not intended as the start of a lengthy easing cycle.

By the close of trading on Thursday, however, markets had restored full expectations that the Fed indeed would need to ease policy substantially more from here. ...

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