Gaming the Fallout from a Trade War on the Fed's Rate Plans
The worst outcome for markets would be a negative supply shock that leads to weaker growth, faster inflation and tighter monetary policy.
The Fed is poises to raise interest rates this week.
Photographer: Brendan Smialowski/AFP
The U.S. economy is charging through the second quarter at a growth rate that currently looks to be faster than 3 percent, and I have argued that an interest-rate increase by the Federal Reserve this week and in September are basically a lock. What could go wrong with this forecast? Plenty.
For example, there's the potential contagion from either an emerging-market or European financial crisis. Also, the economy faces an imminent threat from the Trump administration’s decision over the weekend to escalate an already ill-advised trade war. These events could roil the Fed’s plans, possibly leading to an early pause in the tightening cycle.