Economy & Markets

Wall St. mixed after Fed raises key rate

By Canadian Press |
Source: The Canadian Press

Canada's main stock index hit a record high Wednesday, while American markets were largely ahead following the U.S. Federal Reserve's widely-expected decision to raise short-term interest rates for the third time this year.

The S&P/TSX composite index was up 22.56 points to 16,136.59, after a record intra-day high set earlier in the morning at 16,187.85. Gold and materials led the commodity-heavy index as financials and energy stocks weighed.

In New York, major Wall Street indices were mixed after Fed policy-makers ended their two-day meeting Wednesday by raising the federal funds rate — what banks charge each other for short-term loans — by 0.25 percentage points to a still-low range of 1.25% to 1.5%.

Read: U.S. Federal Reserve boosts benchmark rate for third time this year

The Dow Jones industrial average advanced 80.63 points to 24,585.43, its fourth consecutive trading day of record highs. The S&P 500 index was down 1.26 points to 2,662.85 and the Nasdaq composite index was up 13.48 points to 6,875.80.

The Fed also said Wednesday it expects the U.S. job market and economy to strengthen further next year, which is one reason it forecast that it would raise rates three times next year.

"There were some market participants expecting potentially four rate hikes next year so perhaps this wasn't quite as hawkish as some people were looking for," said Kathryn Del Greco, an investment adviser with TD Wealth. "But as expected rates are moving, although at slow incremental paces. But it is a good sign for strength in the U.S. economy."

Lack of inflationary pressure, seen again in Wednesday morning's Consumer Price Index report, is keeping the Fed somewhat cautious, said economist Josh Nye of RBC Economics Research.

"It is telling that most don't expect inflation will rise much above 2% in the coming years, even with economic conditions expected to be very tight," he wrote in a note to clients.

In currency markets, the Canadian dollar closed at an average trading price of US77.8¢, up 0.12 of a U.S. cent against a weakening greenback — a surprising development that is counterintuitive to U.S. rates moving higher, Del Greco noted.

"I think again it's a testament to people expecting a stronger hawkish tone coming from (U.S. Fed Chairwoman) Janet Yellen and the fact that inflation data was a little bit softer," she said. "So the U.S. dollar has actually sold off a little bit today and the Canadian dollar has benefited from it."

On the commodities front, the January crude contract was down US54¢ to US$56.60 per barrel and the January natural gas contract was up US4¢ to US$2.72 per mmBTU.

The February gold contract added US$6.90 to US$1,248.60 an ounce and the March copper contract was up US3¢ to US$3.05 a pound.