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Fannie Predicts Economic Headwinds and Opportunities for 2018

Fannie MaeThere’s a familiar ring to Fannie Mae's June 2018 Economic and Housing Outlook. The agency is still predicting, as it did in May and April, that the U.S. GDP will climb 2.7 percent through the remainder of this year. It also projects 2.3 percent growth in 2019, which the agency also has been saying for a couple months.

This year's growth projections are based on “the timing effects of fiscal stimulus,” which Fannie said should fade by late next year.

“Our growth forecast continues to reflect our 2018 theme: the ongoing stimulus/response of fiscal policy and resulting tightness of monetary policy,” said Doug Duncan, Fannie Mae's chief economist. “On the heels of a disappointing first quarter, we expect economic growth to accelerate through the remainder of the year before decelerating in 2019.”

Duncan said that upswings in consumer spending and nonresidential investment expectations, along with reduced labor market slack, should allow the GDP to grow by nearly 3 percent.

But, he said, there are tensions. The Federal Reserve is considering additional rate hikes this year and next. And then there is “the heated rhetoric of protectionism” and the application of tariffs, which Duncan said magnifies the risks on the downside.

That said, Duncan added that the country's continuing tight housing inventory, strong labor market, and positive demographics bode well for single-family home building.

“But builders continue to face headwinds from rising costs, which, along with rising interest rates, are also contributing to affordability concerns,” he said.

Overall, Fannie said in its June reports that it “sees a mostly balanced upside and downside risks to its forecast.”

On the upside, there's the potential for acceleration of business investment and increased consumer spending. Fannie wrote that consumer spending growth “appears poised to accelerate amid continued modest wage growth and a historically strong labor market, while domestic demand should continue to receive a boost from nonresidential investment.”

On the downside, there's “a faster pace of Fed monetary tightening, intensifying trade tensions, and political uncertainty in the Euro Zone,” according to the report. Last week, the Fed raised the federal funds rate by an additional 25 basis points. At the same time, it released projected stronger growth, lower unemployment rates, and higher inflation for this year.

From a trade perspective, Fannie reported, recent tariff announcements are likely to be felt disproportionately across states. North Dakota and Texas, “where exports to their international neighbors account for 8 and 5 percent of state product, respectively,” the report stated, are the most likely to feel the sting of tariff war backlash.

Despite that the Fed implied four rate increases this year (modified from an earlier three), Fannie said it expects only one more hike in 2018, “but with an increasing chance that the second half of the year will register two additional hikes.”

About Author: Scott Morgan

Scott Morgan is a multi-award-winning journalist and editor based out of Texas. During his 11 years as a newspaper journalist, he wrote more than 4,000 published pieces. He's been recognized for his work since 2001, and his creative writing continues to win acclaim from readers and fellow writers alike. He is also a creative writing teacher and the author of several books, from short fiction to written works about writing.

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