Chief economist provides greater insights on the impact of a hyperinflation.
Earlier this week, Fannie Mae released its March economic forecast, which suggested a possible “modest recession” in 2023. The news came shortly after MPA news editor Richard Torne caught up with Doug Duncan, chief economist of Fannie Mae, to dig deeper into the possibility of a recession.
In the MPA TV episode, Duncan talked about the impacts of the Russia-Ukraine war on the US housing market and the likelihood of a recession.
“The Fed will not be done with its job on bringing inflation back under control for some months and their messaging that they want to maintain lots of flexibility, but clearly they’re going to start raising rates. The question is, can they stem inflation without also creating a recession?” Duncan said. “That’s a difficult dance to do, and it is even more complicated, as with what’s going on in Ukraine.”
Duncan explained that the Fed’s rate hike would likely push mortgage rates to around 5%. Consequently, refinances will continue to decline, and the pace of home sales will slow down. However, Duncan expects the upward trend in house prices to continue, becoming more of a constraint to higher interest rates.
“Unquestionably, the probability of recession is higher today than it was even two months ago,” he said. “How high is it? It’s certainly not 50%, but we’re lowering our forecast. I don’t know exactly what the number will be, but you should expect that our forecast for growth for 2022 and 2023 will be lower than it was with regard to a hyperinflation. If we should probably define terms, something over 10% annualized, but I wouldn’t expect that.
“I do believe the Fed will act against it. And there are some supply issues that are being resolved gradually, which have contributed to the underlying rate of inflation, and those are starting to move in the right direction. So, I don’t think we’ll get to that 10% plus range, but it will be a while before we get back to 2%.”