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August 12, 2019 — US-China Trade War is the Economy’s Biggest Threat

AUGUST 12, 2019 – US-CHINA TRADE WAR IS THE ECONOMY’S BIGGEST THREAT

As trade talks between the US and China remain at an impasse, the world economy is inching toward recession.  Investors are nervous and are demanding politicians and central bankers take action to avert disaster.  Lawrence Summers, former US Treasury secretary and economic advisor, said ‘recession risk is higher than it needs to be, and higher than it was two months ago.”

The US government has pushed the Fed into a corner.  The recent easing of rates has temporarily relieved the pressure, but monetary policy cannot solve trade policy.  The problem remains the Fed is limited in its ability to stabilize the economy because rates never rose high enough to create enough of a buffer.

The Fed is duty-bound to stabilize the economy and fend off recessions, so unless the US government can quickly broker a truce with China, rates will keep inching down.