"We've entered this new volleying phase of the trade war," Shalett said in an interview with Markets Insider. "And so the way I've described it to people when I've been talking to folks throughout the day it feels like the magical goldilocks of July" has disappeared as both the Fed put and the Trump put passed by.
The Fed could step back in during its September meeting, but it remains to be seen what action will be enough, she said.
"The market will tell us," Shalett said. "The market is smarter than any one of us, and a steepening yield curve where long term rates go up will tell us if the market thinks the Fed's done enough."
A lot of what hangs in the balance, she said, is the outlook for inflation.
"People really believe that something's going to happen to cause inflation to go up," Shalett said. "If people start feeling like governments and fiscal policy is going to be positive as a catalyst for growth, that could be something that gets interest rates on the long end moving up again. And trade is a piece of it, but it's not the only thing."
In the current environment, Shalette says it's hard to find bright spots that give investors hope for the future.
"What we have said to our clients is as long as these yield curves remain as strongly inverted as they are and we have 30-year Treasurys at all time lows, we have to really ask ourselves what's the information content in that reading?"
And when long term yields are that low, that reading is not good, she said. But why?
"Because long term yields are ultimately a proxy for the growth in the economy," Shalette said. "Ultimately a proxy for the time value of money or the term premium of money."
She continued: "When interest rates are this low, what it is essentially saying is 10 years out, 30 years out, the market isn't convinced that the US economy can grow at somewhere between 1.6 and 2%. That's pretty horrifying."