Guggenheim's Minerd Says Trade War Devastating for U.S., China

(Bloomberg) -- Scott Minerd, chief investment officer for Guggenheim Partners, says a trade war with China may be “devastating” for the world's two largest economies, raising the risk of a deep U.S. recession as soon as next year.

“The tail risk is getting fatter and fatter,” Minerd, whose firm oversees about $305 billion, said in a Bloomberg Television interview. “So far the Chinese have shown no interest in backing down, but neither does Donald Trump.”

U.S. stocks rallied Thursday after China held off from immediately retaliating against the latest salvo from President Trump. China appeared to strike a conciliatory tone in reaction to Trump's newest escalation of the trade war between the countries.

Higher tariffs from a trade dispute may fuel U.S. inflation, prompting the Federal Reserve to lift its benchmark rate to as much as 3.5 percent by the middle of next year, Minerd said. That would raise the cost of borrowing and put the brakes on growth, the money manager said. The rate hikes would probably occur as the stimulus from tax cuts wears off, adding further downward pressure on the economy.

“The consequences of a trade war would be devastating for the U.S. and the Chinese economy,” Minerd said.

--With assistance from Scarlet Fu and Julie Hyman.

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Josh Friedman, Dan Reichl

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