The US economy will enter a “modest recession” in the back half of 2023, Fannie Mae FNMA predicts.
“We maintain our view that a modest recession will begin in the second half of 2023,” Doug Duncan, senior vice president and chief economist at Fannie Mae FNMA,
he said in a statement.
The government-sponsored company expects a recession as credit conditions tighten.
While consumer spending remains “unsustainably high relative to income” and recessions are the “typical outcome” of when a central bank tightens monetary policy, the intended effect has not been atypical, he say the group
Housing demand outstripping housing supply is “the number one exposure” why the group expects the recession to be mild, Duncan added. Fannie Mae also expects the “relative strength” of the housing sector to drive the US economy into expansion mode again next year.
Typically, when a central bank tightens monetary policy, it affects credit conditions and pushes the economy into a recession, Fannie Mae said.
But “the usual channels through which monetary policy helps to slow the economy may be disrupted, as evidenced by recent increases in new car sales driven by improved supply conditions and a more optimistic outlook from home builders,” the group said.
However, a modest recession will still occur, they stressed, “as the Fed is likely to maintain policy tightening for longer if wage-related inflationary pressures do not abate.”