Long-Term Forecast
Thomas Feltmate, Director & Senior Economist | 416-944-5730
Andrew Hencic, Director & Senior Economist | 416-944-5307
Date Published: June 22, 2026
United States
- The U.S. economy is forecast to run slightly above its long-run trend rate of growth in 2026/27, aided by expansionary fiscal policy, loose financial conditions, some easing in regulation, and further investments in AI. The unemployment rate is expected to drift a bit lower in H1-2027, as above potential growth leads to some firming in employment. The unemployment rate is expected to return to its long-run average of 4% by mid-2027.
- Inflation pressures remain elevated, as the cooling in services inflation has slowed, while tariffs and higher software prices related to the inclusion of generative AI have kept goods prices elevated. Core measures of inflation are expected to hover around 3% through most of this year, with the Fed’s preferred measure of inflation (core PCE) not expected to reach the FOMC’s 2% inflation target until H1-2028.
- We expect the Fed to remain on hold through year-end, with the potential for two more rate cuts in H1-2027, provided inflation shows definitive evidence of moving back to the Fed’s 2% inflation target.
Canada
- Canadian economic growth is expected to bounce back in 2026 and into 2027 after a dismal start to the year. However, the pace of recovery is due to be held back by slower population growth and the impact of U.S. tariffs on export demand and business and consumer sentiment. Consumer spending is expected to slow as inflation erodes buying power and the unemployment rate holds above its long-run level until late 2027.
- CPI inflation is above the Bank of Canada’s 2% target. Higher oil prices are expected to lift energy price growth in 2026 and filter through to prices more broadly. However, its impacts on core inflation are expected to be mitigated by sub-par economic growth. Core measures of inflation are expected to return to the 2% target by H2-2027.
- The Bank of Canada is expected to keep its policy rate at our estimate of the neutral rate (2.25%) over the remainder of the forecast horizon, as economic growth returns to its trend pace.
- We expect the loonie to return to the 74 - 75 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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