The U.S. Federal Reserve has raised interest rates for the fourth time this year, prompting a widespread market selloff. Meanwhile, in Canada, expectations for an interest rate hike in January dropped to near zero after the latest inflation figures came in lower than expected.
The U.S. Federal Reserve raised its benchmark interest rate by a quarter of a percentage point to a range of 2.25% to 2.5% on Wednesday – putting the benchmark rate at its highest level since 2008. The statement the Fed issued after its latest policy meeting said "some" further gradual rate increases are likely. But its updated forecast projects just two interest rate increases in 2019, down from three that had been predicted in September of this year.
The rate increase prompted a broad-based selloff on financial markets. The Dow Jones Industrial Average the declined by 700 points on the day and closed at its lowest level for the year. The decline was described as the worst response to an interest rate hike since 1994, when the Federal Reserve raised rates 2.5 percentage points in a year.
In Canada, lower gas prices pulled the annual inflation rate in November down to 1.7%, the first time in 10 months it has been below the Bank of Canada's 2% target, underscoring market expectations that imminent interest rate hikes north of the border are likely on hold.
Analysts in a Reuters poll had forecast the annual rate would fall to 1.8% from 2.4% in October. November's rate matched the 1.7% in January 2018. The Bank of Canada, which has raised rates five times since July 2017 as the economy strengthened, said earlier this month that economic data heading into the fourth quarter had been weaker than expected.
Canada’s central bank, which had predicted lower gas prices would pull down the annual inflation rate, is due to announce its next interest rate decision on January 9, 2019 and markets now expect no change.
