The Dow Jones Industrial Average slid to its worst losing streak in more than four decades as investor hopes that the Federal Reserve will aggressively cut interest rates next year continued to diminish.
The central bankers wrap up their last two-day meeting of the year Wednesday, when they are widely expected to announce another quarter-point rate cut — the third this year.
But particular attention will paid to the Fed’s summary of economic projections (SEP) and comments from Chair Jerome Powell, which may indicate how aggressive the central bank will be in cutting rates in 2025.
The Fed may slow its easing in an economy that appears to have solid momentum and sticky inflation, and as the incoming Trump administration is expected to impose policies to stimulate growth and potentially reignite rising prices.
“This is just kind of standard fare for a pre-Fed day market where you have just a little bit of uncertainty, people are not sure how to position ahead of the SEP and ahead of Powell,” said Jason Ware, chief investment officer at Albion Financial Group in Salt Lake City, Utah.
“Everyone knows we’re getting 25 bps … what Powell is going to say at the press conference, what the SEP is going to tell us, those things people are not quite sure of so you have a little bit of jitters ahead of that.”
On Tuesday, the blue-chip Dow fell 267.58 points, to 43,449.90 extending the longest losing streak since 1978. The S&P 500 lost 0.39% and closed at 6,050.61, while the Nasdaq Composite, which hit a record high on Monday, dipped.32% to end at 20,109.06.
Some of the drop in the Dow can be attributed to profit-taking immediately after the 30-stock index hit a record high of 45,000.
The CNBC survey of 27 top economic experts found that 93% forecast a quarter-point rate cut in December from its current range of 4.50% to 4.75%.
But only 63% of those polled said that was the right thing to do, despite experts pointing to an initial Trump bump that has revived economic activity on Main Street and Wall Street.
Inflation stands at 2.7%, well above the Fed’s 2% target.
The policymakers are expected to continue chipping away at the interest rate over the next two years. They are forecast to slash the rate down to 3.8% by this time next year and 3.4%, or just above the average neutral rate, by the end of 2026, according to the CNBC poll.
But the survey of economists, strategists and fund managers indicated there was still uneasiness about Trump’s threat of slapping tariffs on foreign goods and tax cuts.
“I can’t remember being this uncertain about the inflation outlook,” said economist Robert Fry, warning of “a mix of inflationary (tariffs, individual tax cuts) and disinflationary (deregulation, spending cuts) policies.”
“Who knows what combination we’re going to end up with?” he added.
According to the CNBC poll, 56% of experts surveyed said the incoming administration’s economic platform is “somewhat inflationary” while a further 11% saw it as “extremely inflationary.”
“The economy remains surprisingly strong and the only risks on the horizon stem from potential tariffs and the possible deportation of essential, largely non-replaceable immigrant workers,” added economist Joel Naroff in a reference to the president-elect’s campaign promise to boot out all migrants who had illegally entered the country via the southern border.
A rate cut at Jackson Hole Wednesday would lower borrowing costs for American homes and businesses, and potentially encourage investors to sink more money into the equity market.
The respondents in the CNBC survey also pointed to the size of Uncle Sam’s budget deficit, $1.9 trillion for the 2024 fiscal year, as a possible red flag that could push prices higher.
A budget deficit occurs when a government spends more money than it receives in revenue over a specific time.
It can spark inflation, especially if money has been printed by a central bank to try and plug that fiscal black hole.
An Oct. 28 estimate from the Committee for a Responsible Federal Budget, a budget-focused think-tank, found Trump’s proposed policies could push up US fiscal debt by $7.75 trillion over the next decade from its current debt pile of $36 trillion.