WASHINGTON—Incoming GDP, labor market, and inflation data point to an economy that entered 2025 with strong momentum, but current risks to the outlook are higher than normal due to uncertainty around trade policy, including additional tariff proposals, according to the February 2025 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group.
“Economic growth was strong to start the year as fourth quarter personal consumption data came in above our expectations,” said Kim Betancourt, Fannie Mae vice president of multifamily economics and strategic research. “Going forward, we expect the economy to decelerate slightly as consumer spending slows to a level more consistent with its historical relationship to income.
“However, ongoing uncertainty around trade policy adds risk to our GDP and inflation outlooks, which may have implications for mortgage rates, although the direction – up or down – would depend on a number of factors,” Betancourt continued. “Higher mortgage rates would exacerbate the existing ‘lock-in effect’ and worsen affordability, which may then weigh on home sales and mortgage originations activity. Of course, if mortgage rates move lower, we’d likely see an improvement in affordability and a corresponding pickup in housing activity.”
ESR Group notes:
- “Our GDP outlook (2.2% Q4/Q4 in 2025) is only modestly revised this month, with stronger growth in Q1 offset by a slower pace of expansion later in the year.”
- “We have upwardly revised our inflation forecast primarily due to higher-than-expected recent data releases. We now expect the Consumer Price Index (CPI) to be 2.8% on a Q4/Q4 basis in 2025 and core CPI to be 2.9% (previously 2.5% for both).”
- “This forecast incorporates the currently implemented additional 10% tariff on imports from China, which has reduced our GDP forecast by one-tenth on a Q4/Q4 basis and increased our CPI forecast for 2025 by roughly the same magnitude.”
- “We have modestly upgraded our mortgage rate outlook this month and expect rates will end 2025 and 2026 at 6.6 and 6.5%, respectively.”
- “Our housing forecast is little changed this month, with a slight upgrade to existing home sales due to stronger-than-expected sales data in December.”
- “Our outlook for single-family mortgage originations has been slightly modified to $1.89 trillion in 2025 (previously $1.92 trillion) and $2.22 trillion in 2026 (previously $2.27 trillion).”