diff --git a/resources/type-system/inference.md b/resources/type-system/inference.md
index f33b439e78..49d954b3d6 100644
--- a/resources/type-system/inference.md
+++ b/resources/type-system/inference.md
@@ -6,6 +6,10 @@ Status: Draft
 
 ## CHANGELOG
 
+2023.06.15
+  - Adjust function literal return type inference to avoid spurious application
+    of `flatten`.
+
 2022.05.12
   - Define the notions of "constraint solution for a set of type variables" and
     "Grounded constraint solution for a set of type variables".  These
@@ -345,15 +349,22 @@ all `return` and `yield` statements in the block body have been considered.
 Let `T` be the **actual returned type** of a function literal as computed above.
 Let `R` be the greatest closure of the typing context `K` as computed above.
 
+*Now compute `S`, which is the future value type of an `async` function, the
+element type of a generator function, and the return type of other functions.*
+
 With null safety: if `R` is `void`, or the function literal is marked `async`
 and `R` is `FutureOr<void>`, let `S` be `void` (without null-safety: no special
 treatment is applicable to `void`).
 
-Otherwise, if `T <: R` then let `S` be `T`.  Otherwise, let `S` be `R`.  The
-inferred return type of the function literal is then defined as follows:
+If the previous paragraph did not yield a value for `S`: When the function is
+marked `async`: if `T <: futureValueType(R)` then let `S` be `T`; otherwise let
+`S` be `futureValueType(R)`. When the function is not marked `async`: if `T <:
+R` then let `S` be `T`; otherwise let `S` be `R`.
+
+The inferred return type of the function literal is then defined as follows:
 
   - If the function literal is marked `async` then the inferred return type is
-    `Future<flatten(S)>`.
+    `Future<S>`.
   - If the function literal is marked `async*` then the inferred return type is
     `Stream<S>`.
   - If the function literal is marked `sync*` then the inferred return type is