A man pumps gas into his vehicle at a petrol station in New York
A man pumps gas into his vehicle at a petrol station in New York February 22, 2011. Oil prices rose to their highest in 2-1/2 years on Tuesday as investors worried that the revolt in Libya could spread to top Middle East producers, as companies suspended operations and ports were disrupted. Reuters

An unexpected jump in oil prices and the potential for further tightening of fiscal policy suggest less economic momentum than previously believed, according to the March 2011 Economic Outlook released today by Fannie Mae's (OTC Bulletin Board: FNMA) Economics & Mortgage Market Analysis Group.

Projected economic growth for the year was lowered to 3.5 percent - down slightly from 3.7 percent in February 2011, but up from 2.7 percent annual growth in 2010.

The increase in oil prices has an impact on the economy, especially on the consumer side, said Fannie Mae Chief Economist Doug Duncan. The U.S. consumes roughly seven billion barrels of oil each year, so every dollar increase in the cost of energy translates into a $7 billion annual tax on consumers, reducing their disposable income available for spending on other goods and services.

Consumer uncertainty also continues to stifle demand for housing, keeping the housing market on a bumpy road to recovery. Our National Housing Survey results during the last year have been very clear regarding consumer uncertainty about the economic and housing environment, said Duncan. This uncertainty, coupled with the rise in oil prices, is precipitating reluctance among people to take on large financial obligations such as borrowing money to purchase a home.

Following completion of the March Economic Outlook, the events in Japan unfolded and are still unfolding. This information was not included in Commentary and Forecasts, but may have an impact on the forecast outlook, Fannie Mae said.