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Fannie Mae Reevaluates Economic Growth

Fannie Mae’s Economic and Strategic Research Group (ESR) predicts full-year 2019 and 2020 U.S. economic growth of 1.5%, down from Fannie Mae’s previous prediction of 2.1%. The GSE cites expected weakness in business fixed investment and softening global economic conditions for the decline.

“This month, escalating trade tensions and concerns about weakening global growth led us to revise lower our full-year 2019 and 2020 forecasts of real GDP growth to 2.1 percent and 1.5 percent, respectively,” said Fannie Mae SVP and Chief Economist Doug Duncan. “Despite a strong start to the year, we expect growth to slow beginning in the second quarter as macro-level uncertainty disincentivizes business fixed investment and starts to weigh on consumer spending. In order to sustain the longest expansion in more than 70 years, we expect the Fed to once again begin easing monetary policy and to cut its interest rate target by 25 basis points in September.”

Fannie Mae’s (ESR) projects that the Federal Reserve will cut the federal funds rate by 25 basis points at the September meeting of its Federal Open Market Committee to fend off greater deceleration in domestic growth. Fannie notes that prices may rise as international trade tensions rise, which may also impact the job market.

This week, the Federal Reserve Chair Jerome Powell will hold a press conference following Tuesday and Wednesday’s Federal Open Market Committee Conference.

Earlier this year, the Federal Reserve announced that it will be keeping the federal funds rate at 2.25 to 2.50%. The Fed statement announced that The Board of Governors of the Federal Reserve System voted unanimously to set the interest rate paid on required and excess reserve balances at 2.35%.

“We expect housing to add to growth for the foreseeable future, and our projection of a 1.0 percent year-over-year increase in home sales in 2019 remains unchanged,” Duncan continued. “Moderating home price appreciation and attractive mortgage rates continue to support affordability, particularly as home builders are now paying more attention to the entry-level portion of the housing market.”

About Author: Seth Welborn

Seth Welborn is a contributing writer for DS News. He is a Harding University graduate with a degree in English and a minor in writing, and has studied abroad in Athens, Greece. An East Texas native, he also works part-time as a photographer.
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