Skip to main content

Even as Economy Remains Stronger Than Projected, Fannie Mae Forecast Still Sees ‘Eventual Downturn’

WASHINGTON—Recent economic data points to a stronger economy than previously expected, but the current business cycle “contours” still point to an eventual downturn, according to the August 2023 commentary from the Fannie Mae Economic and Strategic Research Group.

Given the “recent flurry of strong consumption data combined with two consecutive months of annualized Consumer Price Index (CPI) measures coming in close to the Fed’s 2% inflation target,” the ESR Group noted that the odds of a “soft landing” have increased, Fannie Mae said.

However, the ESR Group added, the full lagged effects of monetary policy tightening are still working their way through the economy.

thumbnail_ESR August

The ESR Group analysis, for example, said wage growth also likely remains too high to be consistent with 2% inflation over the long run, which it believes will keep monetary policy tight. Additionally, the ESR Group posited that the recent rise in medium- and longer-term Treasury yields will likely weigh on interest-rate-sensitive sectors in coming quarters.

The ’If’ and the ‘When’

While the ESR Group noted that both the “if” and “when” of a recession are uncertain given the strength of recent economic data and decelerating inflation, their baseline forecast is for one to occur, now expected to begin in the first half of 2024, Fannie Mae said.

Regardless of whether the economy enters a recession, the ESR Group is forecasting home sales will remain subdued within a tight range.

If the economy avoids a recession, the ESR Group said it expects home sales activity would continue to be suppressed by a lack of existing home inventory for sale combined with continued affordability constraints and homeowners remaining “locked in” to their low mortgage rate.

The Alternative

Alternatively, if the economy enters a recession, improvements in affordability and inventory stemming from likely lower interest rates is expected to be offset at least in part by a weaker labor market, tighter credit, and worsened consumer confidence, Fannie Mae said.

“Regarding new homes, both sales and construction have performed comparatively well despite higher mortgage rates to date; however, the ESR Group notes some downside risk given mortgage rates are again near 7% and homebuilder confidence pulled back in August,” Fannie Mae said.

Easy to Run ‘Aground’

“It is easy to run your forecast ship aground by underestimating the American consumer,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Despite reduced saving, increased rollover credit card balances, and rising credit costs, consumers are sustaining consumption, supported by a decline in inflation.

“Nonetheless, tightening monetary policy takes a toll,” continued Duncan. “Will it result in a recession? Our base case forecast is a mild recession, and it looks as though the alternative is a soft landing, which is slow growth with only a small increase in unemployment. The difference between those two alternative outcomes is not expected to make much difference to home sales. The risk to housing activity is that inflation has bottomed out and begins to reaccelerate, requiring additional tightening from the Fed.”

Comments

Popular posts from this blog

NCOFCU Newsletter

The Bucket Coach is a financial advice book designed by Fire Services Credit Union, Tronto, Canada. and written exclusively for Fire Fighters It's a practical guide for household financial management, including investments, credit and mortgages, and retirement. Developed with contributions from Fire Fighters," NCOFCU Newsletter : " Kevin Connolly Chief Executive Officer    Fire Services Credit Union Phone: 416-440-1294 ext 301  Toll Free: 1-866-833-3285 E-mail:  kevin@firecreditunion.ca 1997 Avenue Rd Toronto, ON M5M 4A3 

Vought: ‘We’re Closing Down The CFPB’ — White House Budget Chief Says Agency Will Shut Down Within Months

  10/16/2025 09:03 am         WASHINGTON—White House Budget Director Russell Vought said Wednesday he plans to shut down the CFPB, PYMNTS reported. Russell Vought Speaking on  The Charlie Kirk Show , Vought said only a handful of employees remain at the CFPB’s Washington headquarters “while we close down the agency,” adding that he expects the process to be completed “within the next two or three months.” Vought’s remarks come amid a series of legal challenges targeting the Administration’s attempts to scale back or dismantle the CFPB. The Administration is currently facing lawsuits from a CFPB labor union and consumer advocacy groups, which argue that Trump lacks the authority to dismiss most of the Bureau’s staff or eliminate the agency altogether. On Wednesday, Vought repeated long-standing Republican criticisms that the CFPB has exceeded its authority and imposed unfair burdens on smaller financial institutions, PYMNTS noted. “All they want to do is wea...

AI Meets Retail: Walmart Lets Shoppers Buy Directly Through ChatGPT Using Sparky Instant Checkout

  10/15/2025 07:10 pm         BENTONVILLE, Ark.— Walmart is teaming up with OpenAI to introduce Sparky AI-driven shopping experiences that let customers and Sam’s Club members complete purchases directly through ChatGPT using its new Instant Checkout feature, PYMNTS reported. The collaboration broadens Walmart’s use of artificial intelligence across its retail ecosystem and underscores a wider industry move toward conversational, predictive commerce. Through the integration, shoppers can plan meals, restock household essentials, or discover new products simply by chatting with ChatGPT—while Walmart manages the entire transaction process seamlessly in the background, PYMNTS explained. “For many years now, eCommerce shopping experiences have consisted of a search bar and a long list of item responses,” Doug McMillon, president and CEO of Walmart Inc., stated in the PYMNTS report. “That is about to change. There is a native AI experience coming that is multi-media...

New from AutoLink

New from AutoLink

Understanding the Fed’s Balance Sheet

Chair Jerome H. Powell Monetary policy is more effective when the public understands what the Federal Reserve does and why. With that in mind, I hope to enhance understanding of one of the more arcane and technical aspects of monetary policy: the Federal Reserve's balance sheet. A colleague recently compared this topic to a trip to the dentist, but that comparison may be unfair—to dentists. 1 Today, I will discuss the essential role our balance sheet played during the pandemic, along with some lessons learned. I will then review our ample reserves implementation framework and the progress we have made toward normalizing the size of our balance sheet. I will conclude with some brief remarks on the economic outlook. Background on the Fed's Balance Sheet One of the primary purposes of a central bank is to provide the monetary foundation for the financial system and the broader economy. This foundation is made of central bank liabilities. On the Fed's balance sheet, the liabili...