US economy continues to expand, but inflation remains elevated

In today’s Federal Open Market Committee (FOMC) statement, the US Federal Reserve (the Fed) once again decided to hold the target range for the federal funds rate at 5.25%-5.5%.

Although economic activity continues to expand at a solid pace, the unemployment rate remains low, job gains remain strong, and inflation remains elevated. However, there are signs of hope as progress is being made. Over the past year the rate of inflation has come down and the Fed confirms in recent months, there has been more progress made towards returning inflation to the 2% target rate.

As we look ahead, the Fed remains highly attentive to inflation risks and will continue to carefully assess all data, outlooks and risks when considering adjustments to the target range for the federal funds rate. At this time, the FOMC doesn’t expect it will be appropriate to reduce the target range until it has greater confidence that inflation is moving sustainably towards the target.

CIBC Capital Markets confirms the rate hold today was expected. Market expectations were for two rate cuts from the Fed in 2024. However, CIBC Capital Markets says the Fed is likely signaling that we should expect only one rate cut by the end of the year. Along with the FOMC statement, the accompanying June projections showed the median voter expects policy to ease four times in both 2025 and 2026 (for a total of eight times in two years). If this is the path the Fed decides to take, it will most likely bring the federal funds rate to slightly above 3% by the end of 2026.

CIBC Capital Markets says the main signal from today’s FOMC statement is that the Fed believes it’s still on track to bring inflation back to the 2% target, but it will take some time. Policy easing may be slower than expected this year before the Fed starts to ease policy quicker in the coming few years. ?

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