Fannie Mae Stays Bullish Looking at 2017

Fannie Mae feels comfortable that it will grow at 2 percent, as predicted, this year, even in the face of a potential rate hike. That’s according to the GSE’s March Economic Developments report, released Wednesday.

Overall, Fannie stated, Federal Reserve officials’ remarks suggest that employment and inflation environments have recently evolved in a way that supports a rate hike.

“Even without more clarity on fiscal policy, the Fed appears ready to continue monetary normalization this month,” the report stated. “Meanwhile, the Fed’s favored measure of inflation—the Personal Consumption Expenditures deflator—jumped 0.4 percent in January from the prior month and 1.9 percent from last January, the strongest annual rise since October 2012 and just one-tenth below the Fed’s target.”

Excluding food and energy items, the report continued, core inflation was relatively stable, rising 1.7 percent from a year ago for the fifth time in six months.

Despite its somewhat bullish hopes for this year, Fannie reported that Q1 growth numbers for the GDP will likely be behind Q4 numbers, which would make Q1 the fourth consecutive time that growth has decelerated to start the new year. Fannie revised it’s original 1.9 percent annualized GDP growth predictions to 1.6 percent, due mainly to a drop in consumer spending in January.

However, Fannie stated, despite signs of a marked slowdown this quarter (about half a percent), consumer spending should continue to drive growth this year, supported by improving labor market conditions.

“The February jobs report showed back-to-back strong job gains, with nonfarm employment rising 235,000 on the heels of modest revisions to the prior two months,” the report stated. “The three-month average job gain climbed to more than 200,000, the best showing since last September, and annual growth in earnings rebounded to 2.8 percent, just below the expansion high of 2.9 percent seen at the end of last year.”

Residential construction payrolls also posted a solid gain, extending a string of at least 18,000 jobs added per month since last November, the report stated. The household survey showed the unemployment rate edged down to 4.7 percent despite a large jump in the labor force, and the unemployment rate fell two-tenths to 9.2 percent.

“According to the Fed’s Financial Accounts of the U.S., household and nonprofit organization net worth—the value of assets minus liabilities—increased $2 trillion in the fourth quarter of 2016 to a record high of $92.8 trillion, boosted by gains in both housing and stocks,” Fannie reported. “Notably, net worth as a share of disposable income rose to 650 percent, also a record high.”