TORONTO — Canada’s main stock index ended down almost 1% and U.S. stock indexes closed even lower following whipsaw trading after the U.S. Federal Reserve raised its key interest rate by three-quarters of a percentage point and signalled more sharp hikes to come.
The rate hike was the third in a row of the same magnitude, pushing its benchmark short-term rate to a range of between 3 and 3.25% for the highest level since early 2008.
Officials also forecast they would further raise their benchmark rate to roughly 4.4% by year’s end, a full point higher than they had envisioned as recently as June.
Wednesday’s rate hike was in line with expectations, which allowed markets to climb soon after the announcement before falling sharply as Federal Reserve Chair Jerome Powell warned at a news conference of the difficult road ahead.
“If we want to light the way to another period of a very strong labor market, we have got to get inflation behind us,” Powell said. “I wish there was a painless way to do that. There isn’t.”
By the close, the S&P/TSX composite index was down 184.15 points at 19,184.54.
In New York, the Dow Jones industrial average was down 522.45 points at 30,183.78. The S&P 500 index was down 66 points at 3,789.93, while the Nasdaq composite was down 204.86 points at 11,220.19.
The reaction could have been worse had the Fed raised rates even more, as some had expected, said Ryan Crowther, portfolio manager at Franklin Templeton Canada.
“If it had come in at 100, or especially higher than that, there would have been more likely a negative reaction because it just would have implied that they think that there’s, you know, even more urgency to affecting the policy.”
The rate decision comes as economies globally, including China, Europe, and in the U.S., are showing signs of weakening, which likely contributed to the somewhat lower rate hike, said Crowther, despite inflation surprising to the upside at 8.3 per cent last week.
The potential of higher rates in the U.S. and falling commodity prices have been putting pressure on the loonie, which traded for 74.64 cents US compared with 74.93 cents US on Tuesday.
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