Growth Forecast Unchanged Ahead of Expected Rate Hike

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Growth expectations for 2017 remain subject to both upside and downside risks from potential policy changes as the Federal Reserve considers raising interest rates for the second time in three months, according to the Fannie Mae Economic & Strategic Research (ESR) Group’s March 2017 Economic and Housing Outlook. Full-year economic growth is projected at 2.0 percent, unchanged from last month, while the forecast for current quarter growth is down slightly due to weaker-than-expected consumer spending data. Still, general business and economic sentiment remain strong despite policy uncertainty.

Thanks to rising household net worth and healthy jobs data, consumer spending should remain the primary driver of growth. A pickup in the Fed’s favoured 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 meeting later today. The ESR Group expects today’s target rate increase 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.

“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,” said Fannie Mae Chief Economist Doug Duncan. “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.”

“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. However, our research suggests that aging millennials, now boasting higher real wages, are beginning to narrow the homeownership attainment gap,” said Duncan.

(Source: Fannie Mae)

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