Fannie Mae Sees Tepid Economic Growth in 2017

As many of President Trump’s cabinet picks, including Ben Carson for Department of Housing and Urban Development and Wilbur Ross for Department of Commerce, await a confirmation vote, Fannie Mae released today its monthly economic and housing outlook with tepid growth expectations due to uncertainty from the Trump administration.

Fannie Mae’s Economic & Strategic Research Group holds its full-year economic growth expectations at 2 percent for 2017, little changed from 1.9 percent last year, citing risks to growth from President Trump’s trade and immigration policies. The administration’s rejection of the Trans Pacific Partnership could shut the U.S. out of trade benefits if the TPP countries successfully form trade agreements, the report says.

While some expect the Federal Reserve to raise rates three times this year with the first hike in March, Fannie Mae expects just two quarter-point rate increases with the first in June, given the uncertainty about the administration’s fiscal policy.

What may prop up economic growth is consumer spending, as two measures of consumer confidence – the Conference Board consumer confidence index and the University of Michigan preliminary sentiment index – remain elevated. Job growth will also contribute, with average monthly gain of new jobs over the past three months picking up to the fastest pace since October, according to the report.

Despite a low level of housing inventory keeping home prices high, leading indicators such as pending home sales were up in December. Mortgage applications continue to “hold up well” relative to the number of homeowners applying to refinance their borrowing agreements, according to the report. The expectation of higher interest rates may have pushed home buyers to take the plunge before any additional hikes, and “the negative impact of rising rates will be felt with a lag,” Fannie Mae says in the report.

Fannie Mae says it’s too early to factor President Trump’s immigration policy and trade executive orders into its forecasts. With President Trump naming Alexander Acosta today as his new nominee to lead the Department of Labor, it will be easier to judge the impact of the new administration once the Senate votes are in.