Long-Term Forecast

Leslie Preston, Senior Economist | 416-983-7053

James Orlando, CFA, Senior Economist | 416-413-3180

Date Published: September 27, 2022


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United States

  • After the strongest annual average growth in nearly 40 years (5.7%) in 2021, US economic growth is set to slow to a 1.6% pace in 2022. Looking into 2023, economic growth is expected to decelerate further, as monetary policy moves well into restrictive territory, pushing growth to a sub-trend pace through 2024. Growth is expected to average 0.7% and 1.2% in 2023 and 2024, respectively. 
  • The labor market has continued to perform better than expected. Labor demand remains near historic highs, while the pool of available workers continues to shrink as the core age participation rate nears its pre-pandemic level. This combined with slower economic growth should give way to a slower pace of hiring – putting upward pressure on the unemployment rate. We now expect the unemployment rate to rise by 1.5%-pts between Q4-2024 and Q4-2024, reaching a peak of 5.1%, before gradually moving back to its long-run average of 4%. 
  • Inflation is expected to hang near its multi-decade highs through the third quarter, before gradually rolling over towards year-end. Even still, we expect inflation as measured by the core PCE deflator (the Fed’s preferred measure) to remain above the FOMC’s average 2% inflation target through 2024. 
  • Monetary policy is expected to become far more restrictive than previously thought. We now project the Fed funds rate to reach 4.5% in early 2023 and remain at that level through the third quarter of 2023. 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%) rate. 


  • The Canadian economy grew at a 3.3% pace over the second quarter of 2022, making it a standout performer on the global stage. Since public health restrictions were lifted earlier this year, mobility has increased, propelling spending, corporate profits, and nominal incomes. Elevated commodity prices are also providing a fillip to Canada’s expansion rate this year. A strong first half will boost annual average GDP growth to over 3% in 2022, before decelerating to approximately 1% in 2023. 
  • Given the expected slowing in demand, the underlying economic dynamics won’t be sufficient to generate enough jobs to absorb people entering the labour force or those already on the sidelines. This means the unemployment rate should push higher. It has already risen from a low of 4.9% to 5.4% and is expected to reach 6.5% in 2024.  
  • The inflation outlook for this year has been upgraded since the June forecast, with little relief expected in the second half of this year. In 2023, CPI inflation is forecast to return to a more palatable level with the help of easing supply chain disruptions, lower energy prices and under more stagnant economic growth. All told, headline and core CPI are expected to reach 2.6% year-on-year by the end of 2023.  
  • With the economy in need of tightening, the Bank of Canada is set to continue raising rates at an aggressive pace, such that the policy rate reaches a peak of 4.0% in 2022. We assume the rate is reduced back towards its neutral level starting at the end of 2023, with the rate reaching 1.75% by year-end 2024.