Fannie Mae recently increased its full-year forecast for 2017 as hurricane recovery promises to increase economic growth.
The government-sponsored enterprise increased its forecast from 2.2% to 2.4% for the year following the strong third-quarter gross domestic product, according to Fannie Mae’s Economic and Strategic Research Group’s November 2017 Economic and Housing Outlook.
“The first print of third quarter economic growth showed surprising resiliency,” Fannie Mae Chief Economist Doug Duncan said. “The expected economic hit from the recent natural disasters either failed to materialize or was drowned out by business optimism.”
“Recent data showed a stronger pickup in domestic demand than anticipated, leading us to increase our growth forecast for the final quarter of this year and coming quarters,” Duncan said. “We also revised higher our 2018 growth forecast to 2%.”
Fannie Mae explained consumer spending ended the third quarter strong, and also expected to post a solid gain in the fourth quarter. This predicted increase in the fourth quarter is due in part to post hurricane durable goods replacement demand.
Business fixed investment will also add to the end of the year growth due to regulatory easing, energy prices amendable to machinery orders and exploration activity and a decline in the dollar.
However, the outlook isn’t as positive for the housing market, which is expected to create a drag on GDP for the third consecutive quarter. The lack of housing inventory continues to make buying a home less affordable.
“Tax cuts, if enacted, present upside risk to our growth forecast for next year but could also lead to more aggressive Fed action,” Duncan said. “Housing still remains a drag on the economy, as shortages of labor and available lots, coupled with rising building material prices, further complicate existing inventory, affordability, and sales challenges.”
Federal Reserve Chair nominee Jerome Powell, if confirmed by the Senate, will gradually continue monetary policy normalization, Duncan said. Fannie Mae continues to predict the Fed will announce its third rate hike in December’s Federal Open Market Committee meeting, and will raise rates twice in 2018.
This forecast is lower than many other experts, who are predicting three or four interest rate hikes in 2018. Goldman Sachs recently predicted the Fed will raise rates four times in 2018, after raising rates in December.
