On June 12, the Federal Reserve released an FOMC statement, in which it announced its intention to maintain interest rates within the 5.25% to 5.5% range. Their updated forecast suggests only one rate cut in 2024, reflecting a cautious approach as they await more significant progress toward the 2% inflation target. Although inflation has eased from its highest levels, Federal Reserve Chair Jerome Powell indicated that the central bank still lacks the confidence to reduce rates. Initially, the market anticipated a rate cut in July 2024, with a probability of 103.8%. However, following Fed’s recent update the probability has dropped to 8.2%. Currently, there is a 52.6% chance of a rate cut occurring on October 18th, as shown below.

The Federal Reserve has maintained its gross domestic product (GDP) growth projection for the current year at an annualized rate of 2.1%. Similarly, the forecasted unemployment rate remains steady at 4%. However, core inflation, as measured by personal consumption expenditures, has increased to 2.8%, a 0.2 percentage point rise from previous estimates.

The Consumer Price Index (CPI), showed no change from the previous month but rose by 3.3% compared to last year. The core CPI, which excludes food and energy prices, increased by 0.2% month-over-month and 3.4% year-over-year, slightly below expected figures. These results suggest that while inflation is not accelerating, it remains a persistent issue.

In May, the labour market presented mixed signals. The unemployment rate increased slightly to 4%, the highest since January 2022. However, wages continued to grow, with average hourly earnings up 0.4% from the previous month and 4.1% from the previous year. This indicates that while unemployment has risen slightly, the job market remains strong.

Considering the current economic conditions, the market outlook remains cautiously positive. The stability in interest rates and the gradual progress in managing inflation provide a favourable environment for investors. However, the potential for future interest rate cuts means that investors should stay alert and prepared for possible market fluctuations.

If you have any questions about today’s Market Update, feel free to call us at 604-643-0101 or email cashgroup@cgf.com .