The highest US interest rates in 15 years

The North American stock markets snapped their week-to-date rally on Wednesday after the US Federal Reserve increased the policy interest rate by 0.5% to 4.5% which is the highest level in 15 years. S&P 500 and Nasdaq added 1.56% and 1.94% respectively and Canada’s S&P/TSX shed 0.41% in the past five days. Canada’s underperformance is mainly associated with the continued decline in oil prices with West Texas Intermediate trading around 77 a barrel.

 

After the softer-than-expected US inflation on Tuesday which was critical for the markets and shoot up equities, the markets were expecting a moderating tone from central bank officials. The US inflation for November showed a 0.2% increase in prices, which means a 7.1% year-over-year increase versus the 7.3% forecast by economists. The softer reading is still well above the two percent target of the central bank.

 

Although today’s interest rate hike was in line with expectations, the notes from the Fed Chair, Jerome Powel, did not provide any softening and he reiterated that the rates hike will continue into 2023. The terminal rate shows to be over 5% in March 2023, meaning the car and house loans are over 7%. We will see whether the continued trend will push the US and global economy over the edge.