Here’s What New Forecast Predicts for Economy, Housing and Refi Volume
The Russian invasion of Ukraine and its implications for the global economy have added to growing inflation pressures and ongoing supply chain difficulties as monetary policy tightening begins, according to the March 2022 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group.
The ESR Group now projects full-year 2022 real GDP growth of 2.3%, down from last month’s projected 2.8%, but acknowledges that “many of its forecast’s base assumptions, including a near-term resolution to the acute global economic effects of the Russian invasion of Ukraine, represent substantial downside risks to both the macroeconomic and housing outlooks.”
Prior to the conflict, the report noted that inflation as measured by the Consumer Price Index hit a 40-year high and the Federal Reserve was poised to begin a course of significant monetary tightening.
According to the ESR Group, the central bank’s already difficult task of enacting a “soft landing” – that is, raising rates to combat inflation without precipitating economic contraction – has been further complicated by the recent geopolitical developments.
Despite the substantial uncertainty, the ESR Group continues to expect the Federal Reserve to raise the federal funds rate five times in 2022 and eight times total through 2023. The Fed increased rates for the first time since 2018, bumping up the Fed Funds rate by a quarter point.
According to the ESR Group analysis, many of the same risks to the macroeconomy described above and in the commentary are also expected to impact housing. The ESR Group increased its 30-year fixed mortgage rate forecast to 3.8% in 2022 and 3.9% in 2023 due to the likely upward impact of Fed monetary policy tightening outweighing, on net, the downward “flight to quality” rate forces on the long-end of the yield curve.
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