TORONTO – Canada’s main stock index fell nearly a percent and U.S. stock indices ended even lower after the whipsaw trade, after the Federal Reserve hiked interest rates by three-quarters of a point and announced more sharp hikes.
The rate hike was the third consecutive hike of the same magnitude, pushing short-term interest rates down to a range of 3 to 3.25 percent, the highest level since early 2008.
Officials also forecast that they would raise interest rates further to about 4.4 percent by the end of the year, a full point higher than they had expected in June.
Wednesday’s rate hike was in line with expectations, allowing markets to rally shortly after the announcement before falling sharply as Federal Reserve Chair Jerome Powell warned at a news conference about the difficult road ahead .
“If we’re going to pave the way into another phase of a very strong labor market, we need to get inflation behind us,” Powell said. “I wish there was a painless way to do this. There is not any.”
At the close, the S&P/TSX Composite Index was down 184.15 points, or 0.95 percent, to 19,184.54.
In New York, the Dow Jones Industrial Average fell 522.45 points, or 1.7 percent, to 30,183.78. The S&P 500 Index fell 66 points, or 1.7 percent, to 3,789.93, while the Nasdaq Composite fell 204.86 points, or 1.8 percent, to 11,220.19.
The reaction could have been worse if the Fed had hiked rates even further, as some expected, said Ryan Crowther, portfolio manager at Franklin Templeton Canada.
“If it got to 100 or particularly higher, there would have been a more likely negative reaction because it would only have implied that they think there is even more urgency to implement the policy.”
The rate decision comes as economies around the world, including China, Europe and the US, are showing signs of slowing down, which likely contributed to the slightly lower rate hike, Crowther said, despite inflation surprisingly jumping to 8.3 percent last week was.
The potential for higher US interest rates and falling commodity prices have weighed on the loonie, which traded at 74.64 US cents compared to 74.93 US cents on Tuesday.
The Fed’s announcement also came on the same day that Russian President Vladimir Putin issued a partial mobilization of reservists, warning that he would not be bluffing about using everything at his disposal to protect Russia.
Markets didn’t seem to have reacted much to the apparent escalation of the war in Ukraine, Crowther said, but it meant continued disruption going forward.
“The effects of war continue to play out in how it impacted certain commodities and has brought much more volatility to various commodities, including natural gas and fertilizer.”
The October natural gas contract rose six cents to $7.78 per mmBTU, while the November crude oil contract fell $1.00 to $82.94 a barrel.
The December gold contract rose $4.60 to $1,675.70 an ounce and the December copper contract fell 4 cents to $3.47 a pound.
This report from The Canadian Press was first published on September 21, 2022.
-With files from AP.
Company in this story: (TSX:GSPTSE, TSX:CADUSD=X)
The Canadian Press