Skip to main content
Press Release

Inflation and Russia’s Invasion of Ukraine Expected to Take Toll on U.S. Economy and Housing Sector

March 17, 2022
Mortgage Rates Likely to Experience Competing ‘Flight to Quality’ and Fed Tightening Pressures

WASHINGTON, DC – The Russian invasion of Ukraine, and its implications for the global economy, has added to growing inflation pressures and ongoing supply chain difficulties as monetary policy tightening begins, according to the March 2022 commentary from the Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group. The ESR Group now projects full-year 2022 real GDP growth of 2.3 percent, down from last month’s projected 2.8 percent, but acknowledges that many of its forecast’s base assumptions, including a near-term resolution to the acute global economic effects of the Russian invasion of Ukraine, represent substantial downside risks to both the macroeconomic and housing outlooks. Prior to the conflict, inflation, as measured by the Consumer Price Index, hit a 40-year high and the Federal Reserve was poised to begin a course of significant monetary tightening. According to the ESR Group, the central bank’s already difficult task of enacting a “soft landing” – that is, raising rates to combat inflation without precipitating economic contraction – has been further complicated by the recent geopolitical developments. Despite the substantial uncertainty, the ESR Group continues to expect the Federal Reserve to raise the federal funds rate five times in 2022 and eight times total through 2023.

Many of the same risks to the macroeconomy described above and in the commentary are also expected to impact housing. The ESR Group increased its 30-year fixed mortgage rate forecast to 3.8 percent in 2022 and 3.9 percent in 2023 due to the likely upward impact of Fed monetary policy tightening outweighing on net the downward “flight to quality” rate forces on the long-end of the yield curve. Combined with the lower economic growth forecast, the ESR Group downgraded its housing outlook and now expects total home sales to decline 4.1 percent in 2022, compared to the 2.4 percent decline forecasted last month.

“A slowing economy, decades-high inflation, expired fiscal stimulus, tightening monetary policy, and now Russia’s invasion of Ukraine are all weighing on the health of the US economy,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “We marked down our growth expectations this month by half a percentage point for 2022, but risks remain firmly to the downside. The interruptions to the trade of energy, agriculture, and other commodities are putting upward pressure on inflation and making an already difficult task for the Federal Reserve even more challenging.”

“Housing is currently acting as support to an otherwise slowing economy, although it is adding significantly to inflation,” said Duncan. “Even as interest rates are rising and reducing affordability, demographics are still strong supports for demand, and the paucity of existing home supply is supporting new construction and sales. The degree to which monetary ease is capitalized into home values suggests increased risk as rates rise, but this may be offset by some evidence that housing is an intermediate-term hedge against inflation.”

Duncan continued: “We expect home purchase loan volume to hold up reasonably well but refinance activity to fall off considerably over our forecast horizon, perhaps totaling only a third of originations, unless there is a drop in mortgage rates, which we do not expect. Nonetheless, from a historical perspective, mortgage rates around 4 percent for fixed-rate loans is still a consumer-friendly rate for a home purchase.”

Visit the Economic & Strategic Research site at to read the full March 2022 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae’s Economic & Strategic Research Group, please click here.

About Fannie Mae
Fannie Mae advances equitable and sustainable access to homeownership and quality, affordable rental housing for millions of people across America. We enable the 30-year fixed-rate mortgage and drive responsible innovation to make homebuying and renting easier, fairer, and more accessible. To learn more, visit: | Twitter | Facebook | LinkedIn | Instagram | YouTube | Blog

Media Contact
Matthew Classick

Fannie Mae Newsroom

Photo of Fannie Mae

Fannie Mae Resource Center

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic & Strategic Research (ESR) 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 ESR 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, including assumptions about the duration and magnitude of shutdowns and social distancing, could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR 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.