The Dow Jones Industrial Average plunged to its worst decline in more than four decades as investors’ expectations that the Federal Reserve will cut interest rates aggressively next year have continued to slide.
Central bankers conclude their last two-day meeting of the year on Wednesday, when they are widely expected to announce another quarter-point rate cut – the third this year.
But particular attention will be paid to the Fed’s Summary of Economic Projections (SEP) and comments from Chairman Jerome Powell, which could signal how aggressive the central bank will be in cutting rates in 2025.
Fed Its smoothness may be slow In an economy that shows solid momentum and sticky inflation, the incoming Trump administration is expected to implement policies to stimulate growth and potentially reinvigorate rising prices.
“It’s kind of standard fare for a pre-Fed day market where you just have a little bit of uncertainty, people not sure how to position ahead of SEP and ahead of Powell,” said Jason Ware, chief investment officer. ” Albion Financial Group in Salt Lake City, Utah.
“Everyone knows we are getting 25 bps… what Powell is going to say at the press conference, what the SEP is going to tell us, things that people are not completely sure about, so you get a little nervousness before that. it occurs. ,
On Tuesday, the blue-chip Dow fell 267.58 points to 43,449.90, its longest losing streak since 1978. The S&P 500 lost 0.39% to close at 6,050.61, while the Nasdaq Composite, which hit a record high on Monday, fell 32%. Will end at 20,109.06.
Some of the decline in the Dow can be attributed to profit taking shortly after the 30-stock index hit a record high of 45,000.
A CNBC survey of 27 top economic experts found that 93% anticipate a quarter-point rate cut in December from the current range of 4.50% to 4.75%.
But only 63% of those surveyed said it was the right thing to do, despite experts pointing to the initial Trump bump that has revived economic activity on Main Street and Wall Street.
Inflation is 2.7%, well above the Fed’s 2% target.
Policymakers are expected to continue cutting interest rates over the next two years. They estimate the rate will fall to 3.8% by this time next year and to 3.4%, or slightly above the average neutral rate, by the end of 2026. According to CNBC poll.
But surveys of economists, strategists and fund managers indicate there is still unease over Trump’s threat to impose tariffs on foreign goods and impose tax cuts.
Economist Robert Fry warned of “a mix of inflationary (tariffs, personal tax cuts) and deflationary (deregulation, spending cuts) policies”, saying, “I don’t recall being so uncertain about the outlook for inflation.”
“Who knows what combination we’ll end up with?” He added.
According to a CNBC survey, 56% of experts surveyed said the incoming administration’s economic platform is “somewhat inflationary”, while another 11% saw it as “highly inflationary”.
“The economy remains surprisingly strong and the only risks on the horizon arise from potential tariffs and the potential deportation of essential, largely non-replaceable immigrant workers,” economist Joel Naroff told the president-elect’s campaign to expel all Said in reference to the promise of. Migrants who had entered the country illegally through the southern border.
The rate cut Wednesday in Jackson Hole will reduce borrowing costs for U.S. households and businesses, and potentially encourage investors to put more money into the equity market.
Respondents to the CNBC survey pointed to the size of Uncle Sam’s budget deficit, $1.9 trillion for the 2024 fiscal year, as a potential threat signal that could push prices higher.
Budget deficit occurs when a government spends more money than it receives in revenues at a specific time.
This could increase inflation, especially if money is printed by the central bank to bridge that fiscal black hole.
An October 28 estimate from the Committee for a Responsible Federal Budget, a budget-focused think-tank, found that Trump’s proposed policies could increase the US fiscal debt over the next decade by $7.75 trillion from the current debt pile of $36 trillion.
