TORONTO — Canadian and U.S. markets were again under pressure Thursday after the Federal Reserve rate decision a day earlier indicated more rate hikes, and economic pain, to come.
“Markets are continuing to absorb the full implications of the Fed decision in terms of the outlook for higher-for-longer interest rates,” said Todd Mattina, chief economist at Mackenzie Investments.
On Wednesday, the U.S. Federal Reserve raised its key interest rate by three-quarters of a percentage point to a target of between three and 3.25%, and indicated it could rise to roughly 4.4% by the end of the year.
In a press conference after the announcement Fed Chair Jerome Powell warned that taming inflation could mean slower growth, higher unemployment and potentially a recession.
“The chances of a soft landing,” Powell said, “are likely to diminish.”
The stark warning pushed up bond yields sharply Thursday as investors digested the implications of Powell’s remarks, said Mattina.
“The Fed yesterday really acknowledged that it was willing to pay real costs in terms of in terms of output and even jobs in order to get inflation back under control. So we’re seeing some of that play through into markets today, including stock markets, which are also down today.”
The S&P/TSX composite index closed down 181.86 points at 19,002.68.
In New York, the Dow Jones industrial average closed down 107.10 points at 30,076.68. The S&P 500 index was down 31.94 points at 3,757.99, while the Nasdaq composite was down 153.38 points at 11,066.81.
The prospect of rising rates in the U.S. and lower growth also put continued pressure on the loonie. The Canadian dollar traded for 74.18 cents US compared with 74.64 cents US on Wednesday.
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