ECONOMICS NOW

US Federal Reserve Interest Rate Decision - June 14, 2017

The US Federal Reserve's Open Market Committee (the Fed) raised its target overnight rate this morning, the third such increase in the past six months. This morning's increase brings its the federal funds rate into a range of 1 to 1.25 per cent.

The Fed's statement accompanying the decision noted a continuation of a strong US labour market conditions despite a recent slowing of job growth. Household spending has picked up and the Fed expects the economy to expand at a moderate pace. While inflation remains below the Fed's 2 per cent target, it is expected to stabilize at 2 per cent over the medium term.

The Fed once again stated that it expects the US economy to evolve in a way that necessitates further but gradual increases to its overnight rate, which means there will likely be at least one more rate increase this year. A tightening cycle in the United States, combined with a shift in bias toward tightening at the Bank of Canada could put some upward pressure on Canadian interest rates in coming months, reversing the downtrend observed recently.

We will have to see how the Bank of Canada responds to this hike in the US. Canada usually follows because our economies are so linked, time will tell.
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