President-elect Donald Trump’s re-election had been a boost for the stock market, with investors expecting business-friendly policies and deregulation. However, Federal Reserve Chair Jerome Powell reminded markets who’s boss by downgrading inflation forecasts and cutting rate hikes to two in 2025.
The news sent stocks tumbling, with the S&P 500 dropping 3% and the Dow losing over 1,100 points, its 10th straight loss. The market’s strong reaction shows that the Fed may have more influence on markets than Trump’s policies.
Powell’s forecast was seen as a “punch in the face” to the market, with many analysts saying it left investors feeling spooked. The Dow had risen nearly 2,800 points since Election Day, but its total gain since Trump’s re-election ended at just 100 points.
The downgrade means fewer rate cuts could lead to lower-than-expected earnings, less hiring, and a weaker economy. Investors who had hoped for a long-term rally are now being forced to reassess their expectations.
While some analysts said they had predicted this scenario, the bond market had already shown signs of inflation concerns rising. Now, investors are taking profits early, citing fear of missing out (FOMO). The Fed’s influence is clear, with its power to move markets unmatched by any other institution.
The market’s reaction highlights that nothing comes easy in investing. Investors will now be closely watching the Fed’s actions, rather than relying on Trump’s policies for direction. As one analyst put it, Powell sent a message to Trump: “I am in charge.”
Source: https://edition.cnn.com/2024/12/19/investing/markets-powell-trump/index.html