But what if the Fed’s accommodation encourages the president to escalate the trade war further, increasing the risk of a recession? The central bank’s efforts to cushion the blow might not be merely ineffectual. They might actually make things worse.
-- Bill Dudley, Bloomberg
I mean, he's got a PhD from Berkeley, for fuck's sake! Perhaps this has more to do with the tone of his tome, than his knowledge of supply and demand, but that is just my conjecture. The United States and, by association, the Federal Reserve Board, does not live in a vacuum. U.S. Treasuries are the safest place in the world for money and they also just happen to offer some of the highest yields on said money.
Today, you could stash a couple hundred million dollars in a U.S. 10-year Treasury and make a 1.481% return. In Japan? You would lose 0.272% on your money. France? You would lose 0.415%. Germany? You would lose 0.693%. Maybe you don't want to lock your money up for 10 years. No problem! The current target federal funds rate is 2.00% to 2.25%, about the same as LIBOR.
The wet blanket on our economy is not the China trade war (that is actually not about trade) but expensive money, when compared to the rest of the world. Which it has to be compared to, since large companies are world players. And smaller companies sell to these large companies. I suspect Bill Dudley is quite capable of explaining this, better than I have.