AP Photo/Richard Drew

Trump's tweets threatening more tariffs on Chinese goods are increasingly looking like they were intended to goad the Federal Reserve into cutting rates further.

Powell cut rates on Wednesday, citing uncertainties in the economy — namely Trump's trade war and increasing tariffs.

Goldman Sachs says: "The tariff announcement tilts the risks toward deeper cuts and raises our subjective odds of a September cut from 60% to 80%."

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Trump's tweets threatening more tariffs on Chinese goods are increasingly looking like they were intended to goad the Federal Reserve into cutting rates further. And Goldman Sachs just raised its chances that the Fed will comply, showing that Trump's tactic is working.

"The Fed chairman said his rate cut was justified by trade tensions, it makes sense the president would be tempted to create more of them," Bloomberg wrote, citing the thinking among equity market traders.

Strategists agreed, saying: "This is the thing that I was most worried about: that the administration would believe that an easier Fed gives them license to get tougher on the trade war," David Kelly, chief global strategist at JPMorgan Asset Management told the Financial Times.

On Wednesday the Federal Reserve cut rates, citing uncertainties in the US economy — namely the effect of tariffs from the trade war. However, Chairman Jerome Powell indicated he wouldn't be as aggressive as the market expected, and stocks fell.

Trump then shocked markets by tweeting out a plan for a 10% tariff on the remaining $300 billion of imports from China, effective September 1.

"The tariff announcement tilts the risks toward deeper cuts and raises our subjective odds of a September cut from 60% to 80%," Goldman wrote in a note to clients dated August 1. The bank puts the odds of a further rate cut this year at 90%.

Prior to the cut Markets Insider reported how Trump had been consistently criticizing the Fed, saying "Our Fed does nothing," in order to get Jerome Powell and his colleagues to cut rates. Trump has increasingly looked for ways to boost the economy ahead of the election in 2020.

But, the real losers of this game are American consumers and producers. US farmers slammed Trump's tariffs to Bloomberg, saying "trade policy is not a game — it has real and serious consequences for rural America."

Goldman said: "We expect this next round of tariffs to be unpopular politically, as President Trump's challengers likely continue to attack the President's trade policy as harmful to American consumers."

JPMorgan's Kelly was a little more colorful: "Tariffs are not a stairway to heaven. They are a ladder to hell, and now we are one rung further down that ladder."

Goldman Sachs

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