The U.S. economy will enter into a “modest recession” in the back half of 2023, Fannie Mae FNMA forecasts.
“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, -0.27%, said in a statement.
The government-sponsored enterprise expects a recession as credit conditions tighten.
Despite consumer spending remaining “unsustainably high compared to incomes” and the fact that recessions are the “typical conclusion” to when a central bank tightens monetary policy, the intended effect hasn’t been atypical, the group said.
Housing demand outstripping the supply of homes is “exhibit number one” for why the group expects the recession to be mild, Duncan added. Fannie Mae also expects the “relative strength” in the housing sector to lead the U.S. economy into expansion mode again next year.
Typically, when a central bank tightens monetary policy, that affects credit conditions and pushes the economy into a recession, Fannie Mae said.
But “the usual channels through which monetary policy helps slow the economy may be disrupted, as evidenced by recent increases in new auto sales resulting from improving supply conditions and a more upbeat outlook from homebuilders,” the group stated.
Nevertheless, a modest recession will still occur, they stressed, “as the Fed is likely to maintain tighter policy for longer if wage-related inflationary pressures do not subside.”