Long-Term Forecast

United States

• A pandemic-induced 3.5% contraction in economic growth in 2020 will be more than offset by an impressive 5.6% rebound this year. And, the boost from fiscal policy may not yet be done. It is likely that the Biden administration will enact more spending on infrastructure and other measures, keeping U.S. growth above trend through 2023.
• The pandemic lifted the unemployment rate to an historic level, but it has since made notable progress. Unfortunately, this masks underlying concerns, as a large number of people have dropped out of the labor force, and improvement has been halting. We expect that above-trend growth will push the unemployment rate below its pre-pandemic low in 2023.
• Labor force growth has also taken a hit from reduced immigration during the pandemic and the implementation of policies under the previous administration. A return of immigration levels to more historical levels is anticipated over the next few years, helping to boost labor force growth over the forecast horizon.
• In the face of the crisis, the FOMC took its policy rate to the zero-lower bound, and enacted substantial monetary stimulus. We expect the FOMC to raise the policy rate in late-2022, and reach 2.0% in mid-2024, where it is expected to remain over the forecast horizon.

Canada

• After a difficult second quarter, reopening of the economy is setting the stage for a solid pick up in economic growth in the third quarter. While the Delta variant poses a risk in the fourth, mitigating measures such as vaccine passport should keep the economy on the road to recovery.  
• As we get past the fourth wave, strong economic momentum will likely flow through to 2022. GDP growth is anticipated to reach 4.4% as the economy continues to rebuild and is aided by fiscal stimulus from both federal and provincial governments. This will contribute to a continual improvement of the unemployment rate through the year.
• Given the ongoing recovery and rising inflation, the Bank of Canada will continue to taper the asset purchases program later this year and move onto the reinvestment phase early next year. As for the overnight rate, we expect the Bank will raise rates in the second half of 2022, with a risk of an earlier lift off should inflation and risk-assets remain elevated.     

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