This cannot be good.
The Federal Reserve is swiftly moving to deal with the rising inflation, which is currently the highest it has been in four decades. According to Fannie Mae economists, the overall outlook for the U.S. economy is not positive right now.
The mortgage lender notably said that currently, the economic and housing forecast shows the possibility of a “modest recession” in 2023. This in part is a result of the aggressive monetary polity and the crisis that ensued from the Russo-Ukrainian war. The inflation rate is now the worst it has been in a generation.
“We continue to see multiple drivers of economic growth through 2022, but they need to rein in inflation, combined with other economic indicators, such as the recent inversion of the Treasury yield curve, led us to meaningfully downgrade our expectations for economic growth in 2023,” Doug Duncan, Fannie Mae’s chief economist, stated.
However, according to their projections, the expected recession would not be worse than the one experienced in 2009. In part, this is because of the state of the housing market and the “far superior” quality of the mortgage credit. According to their reports mortgage lenders are also better equipped to deal with any possible adverse economic conditions.
Over the next two years, home sales, house prices, and the number of mortgages given out are expected to drop “to a pace more consistent with income growth and interest rates,” Duncan noted.
To deal with the inflation, policymakers have now raised rates by a quarter-percentage point in March. Further increases are expected during their May meeting.
“If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” Federal Reserve Chairman Jerome Powell said. “And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”
“The probability of a recession in the next year is not particularly elevated,” Powell added. “All signs are that this is a strong economy and one that will be able to flourish in the face of less accommodative monetary policy.”