US: Horizontal Growth and Lackluster Inflation – TD Securities

TD Securities economists Oscar Muñoz and Eli Neill released their latest outlook, noting that persistent oil shocks and the Iran conflict are posing stagflation risks to the US economy. As a result, they expect US output growth to trend sideways in 2025, which will force the Federal Reserve to maintain a hold on monetary policy.

**Growth Outlook Softening**

The economists project that US economic growth momentum will run slightly below trend into 2026. Specifically, real GDP is expected to grow 2.0% year-over-year in the fourth quarter, while the labor market is set to cool, with the unemployment rate projected to rise to around 4.3%. This combination suggests that, amid ongoing external shocks, the pace of US economic expansion is losing momentum.

**Stalled Disinflation Process**

On the price front, TD Securities' analysis shows inflation is stickier than expected. Both core CPI and core PCE price indexes—two key inflation gauges—are projected to remain stubbornly above the 2% target level throughout the forecast horizon. The report explicitly notes that inflation will only gradually drift back down by 2027, implying a prolonged period of elevated prices that further constrains the Fed's policy room.