Former Fed Chair Jerome Powell and President Trump. Photo: Drew Angerer/Getty Images

It appears increasingly likely President Trump will raise tariffs to 25% on Chinese imports to the U.S. At a rally last night in Florida the president said China "broke the deal."

Why it matters: Economists expect the escalation to reduce 2019 and 2020 GDP growth for both China and the U.S. It could also change the outlook for the Fed, pinning down U.S. interest rates for the foreseeable future.

  • Chris Rupkey, managing director and chief financial economist at MUFG, wrote in a note responding to Trump's speech: "We are not sure who the president is addressing tonight in a campaign rally, but he is sure scaring the daylights out of the financial markets."
  • "This re-escalation of the trade war is going to re-enforce the Fed's desire to just be on hold, at least through the end of this year, but we think until the end of next year as well," Seth Carpenter, chief U.S. economist at UBS, said during a meeting at the bank's New York headquarters.

Futures markets show that Carpenter's assessment is actually quite generous. Investors have been pricing in at least 1 interest rate cut this year, and a greater than 20% chance of 2 rate hikes by January.

  • Simona Gambarini, markets economist at Capital Economics, said in a recent note that because of weakening inflation, the Fed is "even more likely to cut rates if the U.S. economy slows as we expect later this year."

This won't just affect the U.S. and China: Federico Kaune, head of emerging markets fixed income at UBS, expects that the escalation will lead to further "artificial but helpful" global easing by central banks.

  • "You will have the global economy, instead of normalizing monetary policy going the opposite way."
  • "All of these things might provide a cushion in the near term but longer term they open up the opportunity for further dislocations."

Go deeper: The world can't afford a trade war right now

Go deeper

Updated 2 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 5:30 p.m. ET: 33,484,120 — Total deaths: 1,004,082 — Total recoveries: 23,212,633Map.
  2. U.S.: Total confirmed cases as of 5:30 p.m. ET: 7,180,179 — Total deaths: 205,729 — Total recoveries: 2,794,608 — Total tests: 102,342,416Map.
  3. Health: Americans won't take Trump's word on the vaccine, Axios-Ipsos poll finds.
  4. States: NYC's coronavirus positivity rate spikes to highest since June.
  5. Sports: Tennessee Titans close facility amid NFL's first coronavirus outbreak.
  6. World: U.K. beats previous record for new coronavirus cases.
  7. Work: United States of burnout — Asian American unemployment spikes amid pandemic

What to watch in tonight's debate

Joe Biden (left) and President Trump (right) are facing off in Cleveland for the first presidential debate. Photos: Alex Wong (of Biden) and David Hume Kennerly (of Trump)/Getty Images

President Trump will try to break Joe Biden's composure by going after his son Hunter and other family members in tonight's first presidential debate — a campaign source tells Axios "nothing will be off the table" — while Biden plans to stick to the economy, coronavirus and new revelations about how Trump avoided paying taxes.

Driving the news: Biden and Trump are set to debate at 9pm ET at Case Western Reserve University in Cleveland, and it will be moderated by Fox News' Chris Wallace.

Massive layoffs hit Disney theme parks

A person posing for a photo in front of the iconic Disney castle at Disneyland Resort in Hong Kong on Sept, 25. Photo: Miguel Candela Poblacion/Anadolu Agency via Getty Images

Disney is laying off 28,000 workers at its theme parks and experiences and consumer products divisions, the company said in a statement Tuesday.

Why it matters: The coronavirus pandemic has forced the company to close its California theme parks and limit attendance at re-opened parks elsewhere around the U.S. Around 67% of the 28,000 laid off workers are part-time employees, according to Josh D’Amaro, chairman of Disney's parks, experiences and products division.