Fannie predicts interest rate increases this year

by Ryan Smith21 Mar 2016
The Federal Reserve may have held off on a rate hike last week, but that doesn’t mean one isn’t coming – at least according to Fannie Mae.

According to Fannie’s March Economic and Housing Outlook report, the agency’s economists expect the Fed to raise rates twice this year – once in June and once in December.

So far, economic growth in 2016 hasn’t been anything to write home about, according to the report. But some indicators seem to point toward an economy that’s recovering enough to support future rate hikes.

“We see lingering effects of the strong dollar, low oil prices, and soft overseas demand creating a drag on economic growth,” said Fannie Mae chief economist Doug Duncan. “However, the economy appears to have regained some footing after a slowdown in the fourth quarter of 2015, as stocks bounced back and oil prices have risen amid a strengthening labor market. Current labor market and inflation conditions continue to support our expectation of a fed funds rate hike of 25 basis points each in June and December.”

Of course, rate hikes could make life a bit tougher for mortgage-seekers – bad news, since housing affordability is already an issue.

“A less optimistic outlook for future wage gains, especially among small business employees, coupled with continued strong home price appreciation boosted by lean inventory, is adding to the housing affordability challenge,” Duncan said. “Our latest Home Purchase Sentiment Index shows that high home prices are a top reason for consumers’ perception that it’s a bad time to buy a home. However, low mortgage rates should help support moderate housing expansion as we move through the year.”


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