Economic growth for 2017 depends heavily on the upside or downside risks from potential policy changes, according to Fannie Mae.
In fact, the company issued a statement Wednesday morning that the potential for a second rate hike in three months could greatly affect growth projections, according to its Economic and Strategic Research Group’s 2017 Economic and Housing Outlook.
However, Fannie Mae kept its full year projected growth at 2%, unchanged from last month. For the current quarter, on the other hand, growth is down slightly due to weaker-than-expected consumer spending data.
“Our economic forecast remains in a conservative holding pattern as we await word on the particulars of the new Administration’s plans for fiscal stimulus,” Fannie Mae Chief Economist Doug Duncan said. “In the meantime, economic sentiment from most industry stakeholders continues to reach new heights: consumers, as demonstrated by our National Housing Survey, are more positive than at any time since the survey’s inception in 2010 about the direction of the economy, while homebuilders’ optimism remains near an eleven-year high.”
But despite this dip, Fannie Mae explained general business and economic sentiment remain strong despite policy uncertainty. Due to rising household net worth and healthy jobs data, consumer spending should remain the primary driver of growth.
Fannie Mae explained that a pickup in the Fed’s favored measure of inflation in January supported several Fed officials’ hawkish speeches, which led the market to fully price in a rate hike at the conclusion of the Fed March meeting.
But after today’s expected rate hike, the ESR Group also expects it to be followed by two additional hikes in the second half of the year. Home sales should continue to improve this year despite affordability challenges, including continued strong home price appreciation due to scarce inventory.
“Tight inventory remains a boon to home prices and Americans’ net worth, but it also continues to price out many would-be first-time homebuyers,” Duncan said. “However, our research suggests that aging millennials, now boasting higher real wages, are beginning to narrow the homeownership attainment gap.”
