Yesterday’s terrorist attacks on the United States will push the U.S. economy into negative territory and may help guarantee a recession, according to a new report from economists at CIBC World Markets.

CIBC says that an already weakening U.S. economy will likely shrink in the third quarter “as a result of yesterday’s tragic events”. CIBC says that the attack on the World Trade Center could shave 0.5% from U.S. third quarter growth, due to the loss to output from missed work, airline/hotel cancellations, and postponed events.

The firm also sees additional cuts to interest rates by year’s end. “We had forecast the Fed cutting by a full 75 basis points by year end. While this week’s events may not change the scope of this easing effort, it will likely advance the timetable, with a 50 basis point cut coming in the October meeting. We expect the Bank of Canada to follow suit.”

CIBC says that it expects that some of the third quarter impacts will be reversed in the fourth quarter (due to both the rebound in days worked and clean-up efforts), but that, “there are grounds for expecting lasting damage to other sectors. Travel and hospitality will clearly suffer enduring effects. But broader consumer sentiment could also be eroded.”

It says this disaster can’t be compared to the bombing of the federal building in Oklahoma City, or the bombing of U.S. bases and embassies abroad, events that had no visible economic impact, because of the scope and severity of this week’s events.

The firm says that U.S. military expenditures could be a partial offset to the loss of consumer spending, depending on the extent and duration of America’s response.

CIBC notes that “The knee-jerk response in financial markets has been to sell equities and buy Treasuries in a flight to safety. Some of that will be reversed as conditions in U.S. financial markets move towards normalcy. But thereafter, a deteriorating North American economic climate will continue to drive investors into bonds.”

As for energy prices, CIBC says that if U.S. retaliation is limited to a non-energy producing country, oil prices should subside. However, if an oil-producing country is hit, prices are expected to soar.