Business

Major North American markets rally after Fed leaves U.S. interest rate unchanged

TORONTO — Major North American stock markets enjoyed a bounce Wednesday as the U.S. Federal Reserve announced it was keeping its key interest rate unchanged.

In Toronto, the S&P/TSX composite index climbed 188.84 points at 14,710.82, led by large gains in resources including gold, materials, metals and energy.

On Wall Street, the Dow Jones industrial average was up 163.74 points at 18,293.70, while the S&P 500 advanced 23.36 points at 2,163.12.

The Nasdaq composite hit a record high, adding 53.83 points to 5,295.18.

Until recently, markets had been preparing for a rate hike following a late-August speech by Fed chairwoman Janet Yellen in Jackson Hole, Wyo., that many read as a warning about an imminent rate increase.

But this week, the general consensus switched, as Fed watchers bet that the bank wouldn't move on rates due to recent weaker than expected economic figures.

Instead, the Fed signalled that it will likely raise rates at its December meeting, barring any major unforeseen economic drags. 

Investors are also buoyed by hints from the central bank that it's in no hurry to speed up the pace of future hikes. It did not specify how many rates it expects to have next year.

"The pace of increasing rates through to 2017, that looks like that has been pared back, and that's why the markets are reacting so positively to the news," said Scott Vali, vice-president of equities at CIBC Asset Management.

"There is a realization that the economy likely grows at a slower pace than what would've been expected, even a year ago, on a go-forward basis, which means we'll be in a situation where they will be lower for longer."

The Fed said in a statement following its latest policy meeting Wednesday that the U.S. job market has continued to strengthen and economic activity has picked up. But it noted that business investment remains soft and inflation too low, and that it wants to see further improvement in the job market.

It said its policy committee had concluded that "the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives."

The Fed decision came hours after the Bank of Japan said it wasn't taking any new steps to bolster growth but was going to continue to try to stimulate its economy until it reaches an inflation target of two per cent a year.

In the currency market, the Canadian dollar gained 0.59 of a cent at 76.30 cents US, as the November crude oil contract headed up by $1.29 at US$45.34 per barrel.

In other commodities, the December gold contract rose $13.20 at US$1,331.40 per ounce, the October contract for natural gas added on a penny at US$3.06 per mmBtu and December copper was down a cent at US$2.15 a pound.

— With files from The Associated Press

 

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