Fannie Mae’s Economic and Strategic Research Group Revises Full-Year 2021 Economic Growth Upward

According to the December 2021 commentary from the Fannie Mae Economic and Strategic Research Group (ESR), the outlook for full-year 2021 economic growth was revised upward to 5.5% — an increase of 0.7 percentage points compared to November’s projections. The increases are due primarily to stronger-than-anticipated consumer spending and inventory investment data.

The ESR Group also adjusted downward its forecast for 2022 real gross domestic product (GDP) growth to 3.2%, noting that strong recent data likely reflects a pull-forward of activity from the first half of 2022 and is unlikely to be sustained.

The ESR says the principal macroeconomic concern for 2022 remains accelerating inflation — and how the market and policymakers respond to it. While there’s significant room for uncertainty regarding the near-term path of inflation, the ESR Group projects it to peak at approximately 7.0% annualized in the Q1 of 2022 before gradually decelerating to 3.8% percent by year-end.

The ESR Group expects the Federal Reserve to begin a more aggressive pace of monetary tightening in the new year as part of its effort to combat rising price pressures without tipping the economy into recession. The forecast is now calling for interest rate increases in the second and fourth quarters of 2022, and then quarterly through 2023. The market forwards showed a high probability of a third increase in 2022 at the time of writing.

In regard to housing, the ESR Group upgraded its home sales growth projection for 2021 to 7.1%, with a strong end-of-year sales surge expected from the previously projected 5.3% but forecasts a decline of -1.4% in 2022 due to limited listings and growing affordability constraints. The expectation that mortgage rates will continue to drift upward, averaging 3.2% in 2022, coupled with additional home price appreciation, are likely to make affordability a growing constraint on home sales in the new year.

According to the ESR Group, the impact of monetary policy tightening to combat inflation will combine with ongoing supply issues and still appreciating home prices to slow sales activity.