Bullard Fed declares that an "aggressive" step is needed to align the Fed on the markets and ensure its security against the trade war

The US Federal Reserve is expected to cut interest rates by half a point during its two-week meeting to outpace financial market expectations of a rate cut and a global trade war that has become a "one-off". "more general calculation of the situation of the world economy. organized, said Tuesday the president of the Federal Reserve of St. Louis, James Bullard.

Global investors have been squeezing bond yields in recent weeks to record lows, leaving the Fed's overnight rate seemingly out of line, Bullard said.

Economic data released on Tuesday shows US manufacturing sector contracted for the first time in three years as world economic growth slows and reciprocal tariff increases between China and the United States .

Bullard said the situation was tantamount to a "global shock" that justified an "aggressive" measure by the Fed at its meeting in two weeks. In July, the Fed cut borrowing costs by a quarter of a point, its first rate cut since 2008.

"We are too high," Bullard said of the Fed's interest rates, noting that the key rate currently set by the central bank, between 2% and 2.25%, was higher than the current yield of all US Treasury securities. As a general rule, the Fed rate should be a baseline for determining other rates, but even the 30-year bond has fallen below 2%.

US stocks slid Tuesday and Treasury benchmark returns hit a three-year low, as investors feared the long-running trade war weighed on the US and global economy. European shares also fell, while gold safe havens increased.

While central banks often say they do not let the financial markets dictate their policy, "in this case, I would respect the market signal," Bullard said. "We should have a heated debate on moving 50 basis points at this meeting … It would be best in my mind to go ahead and realign now," rather than not earn that one quarter point in September and then again in October.

"Why do that, why not just arrive at the right time today?"

Bullard comments are the most brutal to date, according to a Fed policy elector who approves of larger rate cuts in response to uncertainty over rising rates, policy changes economic, sometimes dazzling, of the last months and the low American inflation.

Although the recommendation is close to the kind of action that President Donald Trump asked the Fed, which he accused of sabotaging his economic plans, Bullard's position rests on a gloomy view the direction of the commercial debate.

"This is an outcome of the ongoing trade liberalization process since the Second World War" and it could take "a lot of time," Bullard said. "In summary, politicians do not generally want free trade" and, in the case of the United States and China, they might see a political advantage to appear harsh.

"The incentives are not very good for both parties to reach an agreement."

It is generally expected that the Fed will reduce its rates at its meeting from 17 to 18 September (investors believe likely a quarter point reduction, with one or two more to follow during year), but the decision is not clear.

Some members of the Fed's rate-setting committee do not see the need to lower interest rates as unemployment also rises to record levels and the economy continues to grow.

In recent remarks, Fed Chairman Jerome Powell said he was ready to lower rates again, but did not indicate a specific timetable or pace for doing so.