Fannie Mae has pushed the recession forecast from Q2 to sometime during Q3 and Q4 of 2023.

Continuing to forecast an upcoming recession that has been on Fannie Mae’s Economic and Strategic Research Group’s economic outlook for months now, the forecast has been updated this month to take into account turbulence in the banking sector caused by the collapse of Signature Bank and Silicon Valley Bank and troubles with Credit Suisse overseas. However troubling these events have been, they have not changed Fannie Mae’s outlook for recession conditions to coalesce this year. They already expected a moderate economic contraction to occur this year, and, historically, turbulence in financial markets have been a characteristic of late business cycle dynamics following monetary policy tightening, as the Federal Reserve is continuing to do. Many typical recessions have historically included bank failures as an attribute. Prior to the collapse of the two banks, data pointed to stronger-than-expected growth during the first quarter of 2023—as a result, Fannie Mae has pushed the recession, which was supposed to occur in the second quarter of 2023, to sometime during the third and fourth quarters of 2023. Importantly, the ESR Group does not anticipate a repeat of the 2008 Financial Crisis. Instead, it believes the Savings & Loan Crisis from the 1980s to be a better analog, specifically regarding the significant interest rate rises that set in motion banking system stress and the resultant macroeconomic effects that contributed to a modest recession in 1991. “Inflation has now been joined by financial stability concerns as threats to sustained growth,” said Doug Duncan, SVP and Chief Economist for Fannie Mae. “These particular pre-recessionary conditions are not unusual, as bank failures often follow monetary tightening—but this may well be the catalyst for the modest recession we’ve been expecting since April 2022.” 


Source: DSNews