(Reuters) – U.S. stock index futures dropped on Friday as investors grappled with the possibility of a government shutdown and a higher interest rate path ahead of a key inflation report.

Dozens of Republicans defied President-elect Donald Trump’s spending bill on Wednesday, leaving Congress with no clear plan before government funding expires at midnight. Failure to extend the deadline could disrupt holiday travel.

Trump’s plans on tariffs, tax cuts and deregulation were among the factors that pushed the Federal Reserve to raise its 2025 forecast for inflation and halve the central bank’s projections of rate cuts that slammed Wall Street on Wednesday.

Investors will look to the Commerce Department’s personal consumption expenditure (PCE) report, due at 8:30 a.m. ET, for clues on how inflation will guide the Fed’s policy. The data is expected to show U.S. consumer spending rose 0.2% in November, same pace as the prior month.

Traders currently expect fewer than two U.S. rate cuts by the end of next year after the central bank lowered rates by a quarter point as expected this week.

At 5:13 a.m. ET, Dow e-minis were down 244 points, or 0.6%, S&P 500 E-minis were down 52 points, or 0.9%and Nasdaq 100 E-minis were down 269 points, or 1.2%.

The Nasdaq was set to fall for the first time in five weeks and the S&P 500 was on pace for its worst week since September. The Dow was on track for its sharpest weekly fall since March 2023.

Elsewhere, European stocks dropped as Trump threatened to hit the European Union with tariffs if the bloc does not make large oil and gas trades.

Nike dropped 3.6% in premarket trading after the sportwear seller forecast revenue would fall by low double-digits in the third quarter.

FedEx jumped 7.7% after announcing the much-anticipated spinoff of its freight trucking division, as it restructures operations to focus on its core delivery business.

(Reporting by Medha Singh in Bengaluru; Editing by Maju Samuel)