Fannie Mae keeps growth prediction conservative amid rising policy uncertainty

But consumer confidence remains high

Fannie Mae predicts conservative growth in 2017 due to rising uncertainty around the new administration’s policies, according to the Economic and Strategic Research Group’s February 2017 Economic and Housing Outlook.

Fannie Mae kept its full-year economic growth forecast the same as last month at 2%, slightly higher than 1.9% last year.

“Last month we revealed our theme for the year, ‘Will Policy Changes Extend the Expansion?’" Fannie Mae Chief Economist Doug Duncan said. “That question still hovers as the month-old administration begins enacting its agenda.”

“Timing effects make it unlikely that we’ll see materially positive impacts stemming from any fiscal stimulus or deregulation this year, while immigration and trade policy pose downside risk,” Duncan said. “Any upside risk is likely to come from increased business investment based on expectations of policy change enhancing prospects for after-tax profits.”

But Fannie Mae isn’t the only one that is concerned. Recently, Goldman Sachs explained why its growing uncertainty caused it to reevaluate its economic predictions for the year.

However, despite the conservative forecast, consumer confidence remains historically high. And consumer spending is expected to remain strong. Trade, on the other hand, is expected to pull growth down after being the only detractor among the major components of GDP growth in the fourth quarter.

While job growth was high in January, wage growth saw a slow-down and more people re-entered the labor market. These conditions support a gradual normalization of monetary policy, according to the forecast.

Mortgage rates remain 60 points higher than before November’s elections, however home sales remain high, with pending home sales rebounding and purchase mortgage applications remaining high.

“We expect the housing expansion to continue, albeit at a more moderate pace than last year given continued pressure on affordability,” Duncan said. “Depressed inventory, particularly in the more affordable segments, will likely constrain sales and push home price gains that outpace income growth.”

“A faster pace of monetary tightening, unless accompanied by a stronger increase in household income, also poses downside risk to housing,” he said.

3d rendering of a row of luxury townhouses along a street

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