WASHINGTON – After stocks had their worst day of the year Wednesday, Wall Street is bracing for what might be coming next. Investors are worried by signs that economies all around the world may already sliding toward recession.
The Dow dropped by 3 percent, more than 800 points, Wednesday after fears of a recession emerged. The tumble was due to a number of factors, including what's called an "inverted yield curve." This happens when the yield – the interest rate the government pays to borrow money – on the 10-year treasury is lower than the 2-year. The last time this happened was in 2007 before the Great Recession.
2 Factors Slowing the Economy
Stephen Moore, an economist at the Heritage Foundation, told CBN's Faith Nation he doesn't think there will be a recession, but he acknowledges the economy has slowed down. He points to two factors.
"Number one, the ongoing trade war with China and the uncertainty that has created," said Moore. "And the second factor has been the Fed which, in my opinion and Donald Trump's opinion, has been way too tight. And when you have the interest rates this low and the inverted yield curve, that's a sign of a Fed being way too tight with money and that needs to be reversed."
What About Trump's Tariffs on China?
For now, President Trump has backed off his threat to impose new tariffs on Chinese goods in September.
"We are doing this for the Christmas season just in case some of the tariffs would have impacted US customers," Trump told reporters this week.
And in a series of tweets, he insisted the economy is strong and America is winning.
But in Hong Kong, pro-democracy protests and China's reaction could have an impact on trade negotiations. Trump tweeted they might have to wait until the situation is resolved.
"Of course China wants to make a deal," Trump tweeted. "Let them work humanely with Hong Kong first!"
He added that China's president is a "good man" and even suggested a personal meeting.
Will the Fed Cut Interest Rates?
Trump also took direct aim at the Federal Reserve for the weakening economy.
"China is not our problem… our problem is with the Fed," Trump tweeted.
Despite a quarter-point cut last month, he's calling for the Fed to further cut interest rates to stimulate the economy.
Moore agrees and says Trump needs a good economy going into 2020.
"I happen to think there will be a deal that gets done in the next six months with China, and when that happens, I think the stock market and the real economy spring back to life in a very powerful way," said Moore. "So there's a real incentive to get a deal done that both countries can live by. And by the way, it will make both countries' economies perform much better."
In the meantime, falling treasury rates do have an upside for some consumers because they mean lower mortgage rates which could be a boom to the housing market. Gold is also up, closing at a six-year high.