The U.S. economy is not behaving as expected.

The aggressive interest rate increases imposed by the Federal Reserve should have slowed the economy down to a crawl, but it has continued to grow and create jobs at a good clip.

Those same interest rate increases combined with global headwinds have helped bring inflation lower, but progress towards the 2% target has stalled.

Released on Tuesday, the latest inflation report from the U.S. Bureau of Labor Statistics shows that the headline inflation rate came in at 3.2% in February—higher than expected by economists and above the 3.1% reading in January. (The expectation was for 3.1% which seems like a small difference, but tenths of a point count when it comes to inflation.)

Excluding energy and food, the core inflation rate was 3.8% in February, down from 3.9% in January, but still too high if price growth is going to return to target.

Is the February report a sign that inflation in the U.S. is heading back to the 9.1% level we saw in June 2022? Thankfully, no. But it does help make the case that the Fed won’t be in a rush to bring down borrowing costs.

Rate cuts are expected this year (markets are leaning toward June for a start date), but the Fed has indicated it wants to be “confident” that inflation will reach 2%.

We might get some signals from the Fed when it meets next week, but given robust economic growth, a strong labour market, and sticky inflation, the deck is currently stacked in favour of cuts coming later rather than sooner and for the cuts to be shallow rather than deep.

Answer to the previous trivia question: As of February 2024, 24% of jobs in Alberta were in the goods-producing sector.

Today’s trivia question: Which country had the highest inflation rate last year?