On Wednesday June 12th, the Federal Reserve announced that it is keeping its key interest rate unchanged (meaning the target range for the federal funds rate continues to be 5-1/4 to 5-1/2 percent).

While it acknowledged that there has been modest further progress towards the target 2% inflation rate in recent months, the U.S. is still experiencing steady economic growth, strong job gains and very low unemployment. These factors make it difficult for the Fed to cut rates (which provides economic stimulus) because that would add more fuel to the demand side of the economy and cause inflation to increase.

The Fed is now projecting a single rate cut for sometime later in 2024.

Regarding U.S. inflation, May’s number came out just this morning and surprised most analysts at 3.3 per cent (consensus prediction was 3.4 per cent), and that’s a drop from 3.5 per cent in April. This is the trend that the Fed wants to see, but it will likely need to see several more months of declining inflation before it’s ready to announce a rate cut.

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