Long-Term Forecast

James Orlando, CFA, Director | 416-413-3180
Thomas Feltmate, Director & Senior Economist | 416-944-5730

Date Published: March 28, 2023


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United States

  • U.S. economic growth slowed to an above trend pace of 2.1% in 2022. Looking into 2023, economic growth is expected to decelerate further, as monetary policy remains in restrictive territory, pushing growth to a sub-trend pace through 2024. Growth is expected to average 1.3% in 2023 and just 1.0% in 2024.
  • The labor market has continued to perform better than expected, despite the ongoing mismatch between demand and supply for workers. Weaker economic growth should soon begin to weigh on hiring intentions – putting upward pressure on the unemployment rate. We now expect the unemployment rate to rise by 1.2 percentage points between Q1-2023 and Q4-2024, reaching a peak of 4.6%, before gradually moving back to its long-run average of 4%.
  • Inflation has slowed from its multidecade highs, though more recent data has shown some stalling in the disinflation process. The core PCE deflator (the Fed’s preferred measure of inflation) isn’t expected to reach the FOMC’s average 2% inflation target until early 2025.
  • We project the fed funds rate to reach 5.25% in Q2-2023 and remain at that level through the fourth 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 (2.5%) rate. 


  • The narrative for Canada is similar to that south of the border. Near-term spending is likely to grow at a modest rate amid resilient job market conditions. However, high inflation and high interest rates will increasingly take their toll on spending and hiring in 2023 and through 2024.
  • The labour market outlook reflects greater weakness than the U.S., with the unemployment rate expected to rise by 1.5 percentage points, reaching a peak of 6.5% in Q3-2024. Compared to the U.S., the Canadian jobs market is not as tight, partly reflecting greater labour supply coming from strong immigration trends.
  • Inflation has likely peaked in Canada and we expect further easing in price pressures in 2023 and 2024. This should allow the Bank of Canada to maintain the overnight rate at the current 4.5% level through 2023.
  • Both short-term and long-term bond yields are likely to decline over 2023 as policy rate cuts become closer to being realized. We assume the overnight rate is reduced back towards its neutral level starting at the beginning of 2024, with the rate reaching 2.25% by 2025.