Long-Term Forecast
Thomas Feltmate, Director | 416-944-5730
Andrew Hencic, Director | 416-944-5307
Date Published: September 23, 2025
United States
- The U.S. economy is forecast to run below its long-run trend rate of growth in 2025 and 2026, as growth is slowed by higher tariffs, some fiscal restraint and slower population growth. Real GDP growth then briefly overshoots in 2027 and then converges closer to potential by 2028. Slower near-term growth pushes the unemployment rate slightly higher, reaching 4.4% by Q4-2025 before gradually returning to its long-run average of 4% by mid-2027.
- Inflation has shown signs of heating up in recent months, as elevated tariffs have started to pressure consumer prices higher for some goods. Tariff passthrough is expected to intensify through year-end, holding core measures of inflation around 3% through mid-2026. Core PCE inflation (the Fed’s preferred measure of inflation) isn’t expected to reach the FOMC’s 2% inflation target until H1-2027.
- We project the fed funds rate to be lowered at a moderate pace back to a level more consistent with its neutral (3.25%) rate by 2026, and hold there as the economy finds its balance.
Canada
- Canadian economic growth is expected to run below trend through 2026 and into 2027. Output is held back by slower population growth and the impact of tariffs on export demand and business and consumer sentiment. Consumer spending had been improving on lower interest rates, but we expect this to slow as the unemployment rate moves above its long-run level until late 2027.
- CPI inflation is currently roughly at the Bank of Canada’s 2% target, but underlying core inflation measures have been running at the top of the Bank’s target recently. Looking ahead, sub-par economic growth and Canada’s removal of many retaliatory tariffs should see core inflation return to target.
- The Bank of Canada is expected to cut its policy rate back to our estimate of the neutral of 2.25% by year-end 2025. We expect the policy rate to remain at this neutral setting over the remainder of the forecast horizon, as economic growth returns to its trend pace.
- We expect the loonie to return to the 74 - 76 U.S. cent range as interest rate differentials narrow between Canada and 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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