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Policy Uncertainty Remains at Center of Modest Growth Expectations
Friday, February 17, 2017 6:30 AM

Conservative growth expectations for 2017 persist as the markets continue to weigh the unfolding policies of the new Administration, according to the Fannie Mae Economic & Strategic Research (ESR) Group's February 2017 Economic and Housing Outlook.

The full-year economic growth forecast remains unchanged from last month's projection of 2.0 percent, slightly above the 1.9 percent growth registered for all of 2016. Despite a cooling in some measures, consumer confidence remains historically high, and, with continued solid hiring and rising household net worth, consumer spending should underpin growth.

Trade is expected to drag heavily on growth this year after being the only detractor among the major components of GDP growth in the fourth quarter. Despite relatively positive headline job gains last month, wage growth slowed and more people re-entered the labor market, conditions that support a gradual normalization of monetary policy. Mortgage rates have moderated slightly but remain 60 basis points higher than before the election. Still, leading indicators of home sales are encouraging with pending home sales rebounding and purchase mortgage applications holding up.

"Last month we revealed our theme for the year, 'Will Policy Changes Extend the Expansion?' That question still hovers as the month-old Administration begins enacting its agenda," said Fannie Mae Chief Economist Doug Duncan. "Timing effects make it unlikely that we'll see materially positive impacts stemming from any fiscal stimulus or deregulation this year, while immigration and trade policy pose downside risk. Any upside risk is likely to come from increased business investment based on expectations of policy change enhancing prospects for after-tax profits.

"We expect the housing expansion to continue, albeit at a more moderate pace than last year given continued pressure on affordability. Depressed inventory, particularly in the more affordable segments, will likely constrain sales and push home price gains that outpace income growth. A faster pace of monetary tightening, unless accompanied by a stronger increase in household income, also poses downside risk to housing."

Visit the Economic & Strategic Research site at to read the full February 2017 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary.