Those high expectations of future rate cuts at a time when the Fed is not clear as to its path could lead to a decline of 10% or more in the S&P 500 in the next few months if the market is disappointed, said Phil Orlando, chief equity strategist at Federated Investors in NY. "After all, his announcement came only a day after an FOMC meeting when Chair Jerome Powell stressed that trade policy uncertainty was a key factor in officials" decision to cut rates by 25bp - a move which Trump has lambasted as "not enough'".
"With those tariffs likely to have a more serious impact than previous measures, this reinforces our view that economic growth will slow sharply over the second half of this year, and is another reason to expect the Fed to cut interest rates by a further 50bp by early 2020", wrote Capital Economics senior US economist Andrew Hunter in a note to clients Friday.
Trump said he was disappointed in Powell as the USA president had called for a more dovish stance at the Fed, but his tariff announcement had the effect he wanted on the outlook for interest rates.
A report Friday showed USA job growth slowed in July and manufacturers slashed hours for workers, but still showed the underlying labor market is healthy, said Mohamed El-Erian, chief economic adviser at Allianz, Newport Beach, California.
Investors were pricing in more than 100 basis points of easing from the Fed over the next year, sending world equities soaring to record highs in recent days. Japan's Nikkei fell 2.1%, Hong Kong slumped 2.5% and China mainland stocks declined around 1.5%.
Market measures of inflation moved higher only briefly following the quarter-point reduction Wednesday, and have been sliding since. The market was looking for assurance that rate cuts would continue.
The new tariffs would hit a wide swathe of consumer goods from cell phones and laptop computers to toys and footwear, at a time when the manufacturing sector is already reeling from the accumulative impact of the trade war.
The Bloomberg Dollar Spot Index fell 0.1%.
Ten-year Treasury yields held near the lowest level since 2016 after the July U.S.jobs report did little little to alter views on the economy and path for future rate policy.
Riskier assets such as shares have had a golden run in the past decade as global central banks have kept monetary policies stimulatory, world growth has been strong and corporate profits have surged.
E-minis for the S&P500 were 0.15% lower. Sterling was last 0.1% lower on the day at $1.2116. The dollar was lower against most major currencies.
In commodity markets, gold softened a touch to stand at $1,435.46 per ounce after having risen 2.3% on Thursday, staying near a six-year high of $1,453 touched two weeks ago.
That tracked the drop in 10-year U.S. Treasuries yields to 1.832% - the lowest since November 8, 2016, the day Trump was elected president.
Oil prices bounced back after suffering a sharp selloff.
Gold dropped 0.2% at $1,441.85 an ounce.
USA crude fell 7.39 percent to $54.25 per barrel and Brent was last at $60.90, down 6.38 percent on the day.