TD Securities economists Oscar Munoz and Eli Nir project that US output growth will remain sideways throughout 2025, citing the lingering effects of the oil shock and ongoing conflict with Iran as key contributors to stagflationary risks. These factors are expected to keep the Federal Reserve on hold for the entire year, with no rate cuts anticipated in the near term [1].
The economists forecast that GDP growth will stay slightly below trend in 2026, ending with a 2.1% Q4/Q4 rate. The labor market is expected to remain stable, with unemployment projected at 4.3% by the fourth quarter of 2026. However, they caution that rising input costs from the oil shock could introduce further uncertainty and potentially weigh on hiring [1].
TD Securities assigns a 25% probability to a US recession over the next year. They do not foresee substantial disinflation in 2025 due to stressed supply chains, projecting core CPI inflation at 2.6% year-over-year in Q4 2026, with similar figures expected for core PCE inflation. Most of the impact from higher oil prices is anticipated to be reflected in headline inflation, with only gradual disinflation resuming in 2027 [1].
The report highlights that while AI and high-income consumers have supported underlying growth, the overall economic outlook remains cautious due to persistent inflationary pressures and external shocks [1].
CONCLUSION
TD Securities anticipates that US economic growth will remain subdued and inflation persistent through 2026, with the Federal Reserve likely to maintain its current policy stance. Stagflationary risks from oil shocks and geopolitical tensions are expected to limit disinflation and keep recession risks elevated.