Former Vice-Chairman of the U.S. Federal Reserve Donald Kohn said the Fed may need to cut interest rates for the second time this year as a means of cushioning the American economy from the bigger impact that re-escalated trade tensions could bring.
In an interview with CNBC on Thursday, Kohn explained that the China-U.S. trade war is already taking a toll on consumer confidence and business confidence.
However, he believes an additional rate cut could help curb the impact.
For Kohn, the first-rate cut was necessary at this point. His comments echoed Fed Chairman Jerome Powell's sentiments on Thursday regarding trade tensions having an influence on the Fed's decision.
The Fed announced its first-rate cut of the year on Wednesday, a day before U.S. President Donald Trump tweeted that he is preparing to impose new tariffs on another $300 billion worth of Chinese products by September.
Trump's comments have since gained backlash from American retailers and other economists who believe the tariff tirade should stop at this point.
The U.S. president's move also prompted some analysts to set their attention on the Fed as the American economy is expected to be affected on a higher level than when the first tariffs were rolled out.
Meanwhile, other analysts have expressed their thoughts on the latest announcement from Trump. Some said the tariffs will hurt the U.S. more than it will hurt Chinese importers.
Managing Director of Hong Kong-based economic research firm Orient Capital Research, Andrew Collier, said he thinks the tariffs are "a sword at the throat of the American economy more than the Chinese economy."
Collier isn't the first economist who has said the White House tax duties on Chinese goods are not doing the U.S. economy any good. Other economic analysts have previously warned against the potential backfiring of the Trump administration's strategy.
Regional Head of Equities Research at AIA Investment Management, Corrine Png, referred to the tariffs as "actually quite counterproductive," adding that American consumers are the ones who suffer more than China does.
Even former top Trump administration adviser Gary Cohn believes the tax duties are not helping boost the U.S. economy. Cohn noted that in Trump's trade war, "everyone loses." His sentiments contradicted the U.S. president's claims about his strategy pushing only China to the brink.
Analysts then believe that the Fed will most likely cut rates again this year as tensions drag on, especially with the re-escalations in place following Trump's Thursday announcement. Beijing said it will take countermeasures if necessary but no details were given as of writing.
