US Central Bank increased the interest rate by 0.75 to 3.25

North American equities seesawed between gains and losses on Wednesday following the US Central Bank"s increased policy interest rate by another 0.75% to 3.25% to combat the hot inflation. The US S&P 500 and Nasdaq lost 1.71% and 1.79%, Canada’s S&P/TSX Composite declined 0.95%.

 

The Chair of the US Fed, Jerome Powell, emphasized that larger raises are likely to tame the 40-year-high inflation. The last US inflation report showed 8.3%, which exceeded expectations. The Fed signaled that the rates could rise to 4.5% in 2023. The two-year US Treasury Yields topped 4% for the first time since 2007, and the Treasury curve inversion deepened, which is used as a sign of distress in the markets and recession risk.

 

However, the Canada inflation report for August showed 7% annually vs. 7.3%. Bank of Canada increased the rate by 0.75% in their last meeting to 3.25%. Although the inflation report of the two countries shows signs of divergence, BoC still believes more hikes are needed to control inflation.

 

The higher interest rates have led to the doubling of mortgage rates in just one year to over 6%, cooling the housing market in both US and Canada. Yet, the latest reports show the rent cost surging, putting more pressure on househ