North American stocks in sell-off after Fed signals more rate hikes
December 15, 2016
Stocks sold off on U.S. and Canadian equity markets on Wednesday after the U.S. Federal Reserve boosted a key rate and signalled more hikes might be in the works than had been previously expected.
Investors reacted by sending the Dow Jones industrial average, which has been flirting with the 20,000-point plateau, down by more than 150 points in the wake of the announcement. The benchmark index of U.S. blue chip stocks later recovered somewhat to finish with a loss of 118.68 points, or 0.6 per cent, at 19,792.53
The Standard & Poor's 500 index lost 18.44 points to end at 2,253.28, while the Nasdaq composite closed at 5,436.67, down 27.16 points.
In Toronto, the S&P/TSX Composite Index shed 188.09 points to close at 15,197.18.
In a move that had been widely expected and factored in, the Federal Reserve increased its benchmark interest rate, called the federal funds rate, by a quarter of a percentage point to a range of between 0.5 and 0.75 per cent. The increase was only the second one in the past decade.
However, the unexpected part of the announcement was that Fed members expect more rate hikes to come, as many as three in the next 12 months, after previously signalling it was expecting only two.
"The move up [in future expectations] is a signal that the Fed has become more confident in the economic outlook and that inflation will increasingly track closer to the two per cent target," said James Marple of TD Economics.
Investors bought U.S. dollars after the Fed's news. The Canadian dollar fell 0.80 of a cent to end at 75.34 cents US.
Oil futures were down sharply. The January contract for light sweet crude fell $1.94 to close at $51.04 US per barrel.
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