The move announced by Treasury Secretary Nuchin will start a formal process to address the "unfair competitive advantage" that the United States believes China has gained as a result of the low exchange rate of the renminbi.
Stock futures fell sharply and U.S. bond futures rose as traders bet that the escalation of a new wave of trade war between the United States and China will lead to a further slowdown of the U.S. economy, forcing the Federal Reserve to respond by further reducing interest rates to ease financial conditions and encourage businesses to hire and spend.
Tim Duy, professor of economics at the University of Oregon, said the decision was shocking.
If last week's rate cuts were the way Federal Reserve policy makers used to prevent potential fires, he said, "The possibility of a fire has risen -- and that's what they're going to deal with."
Interest rate futures currently show that traders believe the Fed is close to 40% likely to cut interest rates by 50 basis points next month, compared with less than 2% and 30% on Friday and early Monday, respectively.
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