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, further investments in AI and a resilient consumer. The unemployment rate is expected to drift a bit lower, reaching its long-run average of 4% by Q1-2027.
- 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. The Fed’s preferred measure of inflation (core PCE) is not expected to reach the FOMC’s 2% inflation target until Q4-2027.
- We expect the Fed to follow through with another quarter-point hike before the end of this year, bringing the target range to 4.0-4.25%. Easing inflationary pressures by mid-2027 will lead to a policy reversal in H2-2027, bringing the policy rate back to 3.5-3.75%. We expect uncertainty about the neutral rate of interest to lead to a more gradual return to a long run steady state for the fed funds rate (3.00-3.25%).
Canada
- The Canadian economy is expected to expand at a below trend pace in 2027 and accelerate thereafter as population growth and the initial shocks from tariffs recede. The unemployment rate is expected to only moderately fall in 2027 and not return to a long-run average until 2028, keeping consumption spending growth muted.
- Inflation is expected to average over 3% into 2027 as elevated energy prices persist. However, economic slack should continue to provide some offset for core inflation, limiting the degree of uptick in price categories beyond gasoline and airfares. The Bank of Canada’s core inflation measures are expected to reach roughly 2.4% in mid-2027 and gradually recede thereafter.
- We expect the Bank of Canada to remain on the sidelines. Higher longer-term yields and trade uncertainty are expected to act as drags on growth and counteract energy driven inflation. The wider spread between Canadian and U.S. interest rates will limit upside to the loonie until mid-2027.
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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