Stock markets in Canada and the United States down after the decision of the American Federal Reserve

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TORONTO – Canada’s main stock index ended nearly 1% lower and U.S. stock indexes closed even lower in choppy trading after the U.S. Federal Reserve raised interest rates director by three-quarters of a percentage point and announced other significant increases to come.

The rate hike was the third in a row of the same magnitude, pushing its benchmark short-term rate into a range of between 3 and 3.25% for the highest level since the start of 2008.

Officials also forecast that they would raise their benchmark rate further to around 4.4% by the end of the year, one point higher than they had envisaged last June.

Wednesday’s rate hike was in line with expectations, allowing markets to rise soon after the announcement before falling sharply, as Federal Reserve Chairman Jerome Powell warned at a conference in press of the hard road to travel.

“If we want to pave the way for another period of very strong labor markets, we have to put inflation behind us,” Powell said. “I wish there was a painless way to do this. There isn’t.

At the close, the S&P/TSX Composite Index was down 184.15 points, or 0.95%, at 19,184.54.

In New York, the Dow Jones industrial average was down 522.45 points, or 1.7%, at 30,183.78. The S&P 500 index fell 66 points, or 1.7%, to 3,789.93, while the Nasdaq composite fell 204.86 points, or 1.8%, to 11,220.19.

The reaction could have been worse had the Fed raised rates further, as some expected, said Ryan Crowther, portfolio manager at Franklin Templeton Canada.

“If it had gotten to 100, or particularly higher than that, there would have been more likely a negative reaction because it would have just implied that they think there’s, you know, even more urgency to apply the policy.”

The rate decision comes as economies around the world, including China, Europe and the United States, show signs of weakening, which likely contributed to the somewhat weaker rate hike. Crowther said, despite inflation surprisingly rising to 8.3% last week.

The potential for higher U.S. rates and falling commodity prices put pressure on the loonie, which was trading at 74.64 cents US from 74.93 cents US on Tuesday.

The Fed’s announcement also came the same day Russian President Vladimir Putin launched a partial mobilization of reservists and warned he was not bluffing by using everything at his disposal to protect Russia.

Markets don’t appear to have reacted much to the apparent escalation of the war in Ukraine, Crowther said, but that means continued disruptions ahead.

“The impact of the war continues to be felt in terms of the impact on certain commodities and has resulted in much more volatility in various commodities, including natural gas and fertilizers.”

The October natural gas contract was up 6 cents at US$7.78 per mmBTU, while the November crude contract was down US$1.00 at US$82.94 per barrel.

The December gold contract was up US$4.60 at US$1,675.70 an ounce and the December copper contract was down four cents at US$3.47 per pound.

This report from The Canadian Press was first published on September 21, 2022.

– With AP files.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD=X)

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