United States
- After a better-than-expected year for economic growth in 2023, the U.S. economy is forecast to slow to a below-trend pace in 2024 as the impact of higher interest rates weighs on demand. By 2025, growth is expected to be on the upswing again as rates normalize, with the economy settling back to trend growth (~1.8%) over the medium term.
- Below-trend growth is expected to push the unemployment rate higher over the next year, reaching a peak of 4.2% in Q4-2024, before gradually moving back to its long-run average of 4% by mid-2025.
- Inflation has slowed from its multidecade highs and is expected to continue to drift lower over the next few years. 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 2025.
- We project the fed funds rate to remain in the 5.25% to 5.50% range until mid-2024. As higher rates cool demand-side pressures and inflation moves meaningfully back towards 2%, we expect the Fed to cut interest rates back to a level more consistent with its neutral (2.75%) rate.
Canada
- Following an economic slowdown in 2024 and subsequent rebound in 2025 and 2026, long-term Canadian real GDP growth is expected to decelerate to around 1.8% annually. This will be driven by solid population and labour force growth, while productivity growth lags behind.
- Consumer spending will undergo a period of below trend growth through 2026, as Canadian households save more in the face of high mortgage debt.
- Business investment is expected to grow above trend over the forecast horizon. 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, we expect headline and core consumer price inflation to decelerate back to the 2% target over the medium term.
- With inflationary pressures easing over the medium term, the Bank of Canada will be able to cut its policy rate back to the neutral rate of 2.25% by 2025. We expect the loonie to return to the 80 U.S. cent level once Canadian economic growth is able to catch-up to that of 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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