Long-Term Forecast

United States

• The U.S. economy is forecast to remain above its long-run trend rate of growth in 2024, before normalizing closer to a trend pace in 2025. Even so, the unemployment rate is expected to edge a bit higher by year-end (reaching 4.3%), before gradually returning to its long-run average of 4% by the first half of 2026. 
• Inflation has slowed from its multi-decade 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 late-2025.
• We project the fed funds rate to be lowered steadily back to a level more consistent with its neutral (3.0%) rate by 2025, and hold there as the economy finds its balance. 

Canada

• Following an economic slowdown in 2023 and 2024, Canadian output is expected to rebound in 2025 and 2026. Thereafter, real GDP growth is expected to decelerate to its long-run average of around 1.8% annually. Population growth is expected to decelerate in the coming years after its recent boom, boosting labour productivity growth.
• 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 stabilize around the 2% target over the medium term.
• As a result, the Bank of Canada will be able to cut its policy rate back to the neutral rate of 2.25% by 2026. We expect the loonie to return to the 75 U.S. cent level once Canadian economic growth is able to catch-up to that of the U.S.