Inflation and Russian invasion of Ukraine will hit US economy, says Fannie Mae

Ongoing geopolitical conflicts are expected to affect the US economy. (istock)

Russia’s ongoing invasion of Ukraine and what it means for global growth could soon begin to take its toll on the US economy as inflation rises, according to the latest economic prospects by Fannie Mae.

The most recent Consumer Price Index (CPI), which is a key measure of inflation, increased 7.9% annually in February, a new high of 40 years. In an effort to combat inflation, the Federal Reserve began raising interest rates at its March meeting, but said more rate hikes will probably be needed to get it back down.

But now, this change in the Fed’s monetary policy has caused Fannie Mae’s Economic and Strategic Research Group (ESR) to lower its projections for economic growth in 2022, according to its March commentary. The ESR Group now projects real GDP growth of 2.3% in 2022, down from its previous projection of 2.8%.

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THE FEDERAL RESERVE RAISES INTEREST RATES: WHAT TO DO NOW

Fannie Mae raises its interest rate forecast

As the Fed continues to raise the fed funds rate to combat the inflation that spiked during the COVID-19 pandemic, other interest rates will rise as well. Fannie Mae raised her predictions for mortgage rates this year and next, forecasting the average 30-year fixed-rate loan to rise to 3.8% in 2022 and 3.9% in 2023.

These annual rates are currently lower than current interest rates, with the 30-year mortgage with an average of 4.16%according to the latest data by Freddy Mac.

“Housing is currently acting as a support to an otherwise slowing economy, yet it is contributing significantly to inflation,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Even as interest rates are rising and reducing affordability, demographics remain strongly supportive of demand, and a tight supply of existing homes is supporting new construction and sales.

“The degree to which the easy money is capitalized into home values ​​suggests increased risk as rates rise, but this may be offset by some evidence that housing is a medium-term hedge against inflation,” he continued. .

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INFLATION RISE TO ANOTHER 40-YEAR HIGH IN FEBRUARY

Economist says risks remain

Fannie Mae said its economic forecast is based on several assumptions, including a short-term resolution of the conflict between Russia and Ukraine. A change in this forecast could present further downside economic risks.

“A slowing economy, decades-high inflation, expired fiscal stimulus, tighter monetary policy and now the Russian invasion of Ukraine are weighing on the health of the US economy,” Duncan said. “We lowered our growth expectations this month by half a percentage point for 2022, but risks remain firm to the downside. Disruptions in energy, agriculture and other commodity trade are pushing up inflation and making the task more difficult. for the Federal Reserve even more challenging.

The ESR group predicted that despite these challenges, the Federal Reserve will raise the fed funds rate five times in 2022 and another three times in 2023. If you want to take advantage of interest rates ahead of potential future rate hikes, you might consider refinance your private student loans to lower your monthly payment. Contact Credible to speak with a student loan expert to see if this option is right for you.

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