Fannie Mae’s Economic and Strategic Research (ESR) Group announced on Wednesday (7-20-22) that they were downgrading their expectations for full-year 2022 and 2023 real GDP growth. The ESR indicated that softening consumer spending and downward revision to business inventory investment data amid record inflation and higher interest rates were the cause for the downgrade.
The ESR Group forecasts real GDP will increase 0.1% in 2022 and decrease 0.4% in 2023, down from their previously predicted 1.2% increase and 0.1% decrease, respectively. Notably, the ESR Group now expects a recession to begin in the first quarter of 2023, earlier than previously forecast, due to the aggressive monetary policy response required of the Federal Reserve to bring inflation down from its current decade-high levels.
By Q4 2022, the ESR Group expects inflation, as measured by the Consumer Price Index, to have moderated to 5.7% on a year-over-year basis, down from the June reading of 9.1%, and then to 1.6% by the end of 2023, below the Fed’s 2-percent target.
The ESR Group revised downward its forecast for total home sales growth in 2022 to a decline of 15.6%, compared to a decline of 13.5% predicted last month, but revised upward its home price appreciation forecast to 16.0% year-over-year-growth in 2022 from the previously projected 10.8%. The ESR Group continues to anticipate strong deceleration in home price growth going forward due to the lagged effects of higher mortgage rates and the slowing economy weighing on purchase demand.
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Economic Growth Stagnating as Record Inflation Persists