David Stockman: Fed would be 'totally nuts' to cut rates - even as trade war risks escalate

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Stockman: Fed would be 'totally nuts' to cut rates

David Stockman has a fresh warning for Wall Street: Expect the U.S.-China trade war to escalate and spark a severe global crash.

According to Stockman, the Federal Reserve won't be equipped to deal with the fallout at home due to years of easy money policies.

"What is the catalyst that is finally going to trigger the huge correction that's implicit in what the Fed is doing? I think it's the trade war," the former director of the Reagan administration's Office of Management and Budget told CNBC's "Futures Now " on Tuesday.

He contends the solution isn't monetary easing.

"The idea that the Fed is going to cut rates after 10 years on the zero bound practically is totally nuts," he added. "It won't stop a recession because we're at peak debt."

Stockman warns that the trade war is exacerbating fundamental issues in a U.S. economy that's older and more sluggish. He predicts tensions between Washington and Beijing will intensify and create damage that spans the globe.

"Donald Trump is an unhinged protectionist, nationalist advocate for trade policies that will eventually disrupt the entire global economy [and] bring on the recession that's around the corner," Stockman said. "Markets always collapse when recession actually arrives."

Stockman, who released the book "Peak Trump: The Undrainable Swamp and The Fantasy of MAGA" this year, has been highly critical of Trump's policies.

"He is only risking upsetting the entire apple cut with this infatuation with tariffs," said Stockman, who reiterated his call for a 40% market plunge during his March "Futures Now" appearance.

Yet, Stockman also believes there's a chance the S&P 500 could exceed its all-time high of 2,940 this year — especially if the Fed cuts rates at next week's policy meeting. But he expects a new record would be short-lived due to the geopolitical and monetary backdrop.

"It may go up beyond that. Who knows? But it is not sustainable because all the debt is there," Stockman said. "It's only a matter of time before we run out of luck on policy."

The White House did not respond to a request for comment.