'Unusually Uncertain' Outlook Tamping Down Economic Activity According to Fannie Mae's Economics & Mortgage Market Analysis Group

Downside Risks Dominate, but Upside Potential Exists

Economic Outlook Podcast Available

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Aug 16, 2010, 11:35 ET

WASHINGTON, Aug. 16 /PRNewswire-FirstCall/ -- Uncertainty in the economy confirms lower expectations for economic growth and a slower-than-normal recovery, according to the August 2010 Economic Outlook released today by Fannie Mae's (OTC Bulletin Board: FNMA) Economics & Mortgage Market Analysis Group. The forecast calls for 2.5 percent growth in the second half of 2010, with some pickup expected in 2011. Housing activity, a central component to the recovery, is expected to be flat for the remainder of the year due to a greater than expected number of sales being pulled forward into the second quarter. Low 30-year fixed mortgage rates, projected to average 4.5 percent for 2010, are expected to boost refinance activity but likely will not be low enough to trigger a refinance boom.

"The inability of the financial sector, business, and households to determine the likelihood of events on the economic horizon is making planning for the future difficult," said Fannie Mae Chief Economist Doug Duncan. "It is particularly difficult to know how the economy will evolve given recent and forthcoming policy changes. Because of this uncertainty, downside risks are trumping upside potential. Corporate profits are strong, but uncertainty around future labor costs is hindering near-term hiring. The Fed is reinvesting maturing MBS into Treasuries as a strategy to keep long-term interest rates low, but uncertainty about reform in the financial sector is constraining credit availability. Consumers are lowering their leverage and positioning themselves to resume consumption, but they face uncertainty about employment and the renewal or expiration of tax cuts," said Duncan. "The upside possibilities are there, however the key sectors are reticent to contribute meaningfully to expansion."

For an audio synopsis of the August 2010 Economic Outlook, listen to the podcast on the Economics & Mortgage Market Analysis site at www.fanniemae.com. Visit the site to read the full August 2010 Economic Outlook, including the Economic Developments commentary, Economic Forecast, and Housing Forecast.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economics & Mortgage Market Analysis (EMMA) group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the EMMA group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the EMMA group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America's secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers. Our job is to help those who house America.

SOURCE Fannie Mae