Long-Term Forecast
James Orlando, CFA, Director | 416-413-3180
Thomas Feltmate, Director | 416-944-5730
Date Published: December 18, 2024
United States
- The U.S. economy is forecast to remain above its long-run trend rate of growth in 2024, before normalizing closer to a trend pace in 2025. Even so, the unemployment rate is expected to edge a bit higher, reaching 4.3% in mid-2025 before gradually returning to its long-run average of 4% by the second half of 2026.
- Inflation has slowed from its multi-decade highs, though progress appears to have stalled in recent months. With the incoming U.S. administration likely to follow through on its campaign promise of raising tariffs on some of its trading partners, the adjustment process back to the Fed’s 2% inflation target is likely to take a bit longer. Core PCE inflation (the Fed’s preferred measure of inflation) isn’t expected to reach the FOMC’s 2% inflation target until the second half of 2026.
- We project the fed funds rate to be lowered steadily back to a level more consistent with its neutral (3.0%) rate by 2026, and hold there as the economy finds its balance.
Canada
- Following an economic slowdown in 2023 and 2024, Canadian output is expected to rebound to around trend in 2025 and 2026. Thereafter, real GDP growth is expected to move to around 1.9% to 2.0% from 2027 to 2029. Population growth is expected to decelerate in the coming years after its recent boom, boosting labour productivity growth.
- Consumer spending has been weak due to the impact of high interest rates, but we expect this to improve over the coming years as lower rates incentivize greater spending.
- Business investment is expected to grow above trend over the medium term before returning to trend over the long-run. The need to build more homes will boost residential investment, and the opportunity to fast track the clean energy transition will cause a lift to investment in structures, machinery, and equipment.
- After a period of high inflation, headline and core consumer price inflation are expected to stabilize around the 2% target over the medium term.
- As a result, the Bank of Canada is expected to cut its policy rate back to our estimate of the neutral rate of 2.25% by 2025. We expect the loonie to return to the 74 - 76 U.S. cent range once Canadian economic growth is able to catch-up to the U.S.
Forecast Tables |
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| Long-Term U.S. Economic Outlook |
| Long-Term Canadian Economic Outlook |
| Long-Term Interest Rates |
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