In the aftermath of the federal government shutdown and contentious debt ceiling negotiations, Fannie Mae predicts “continued market volatility” for at least the next few months.

Consumer sentiment toward the economy and the housing market wavered last month, according to Fannie Mae’s November Economic Outlook.

Looking forward, “[s]ince many remaining policy decisions will spill over into the beginning of next year, it seems likely that both consumers and businesses will continue to pull back in the interim, leading to increased volatility in the markets,” said Doug Duncan, chief economist at Fannie Mae.

The markets await a final budget, a decision regarding the debt ceiling, and the appointment of a new Federal Reserve chair.

Overall, Fannie expects 2013 to end with yearly economic growth around 2 percent and an uptick to 2.5 percent next year.

The housing market contributed 0.4 percentage points to growth domestic product (GDP) in the third quarter, unchanged from the second quarter, according to Fannie Mae.

Existing home sales declined in September, as did pending home sales, which signal more declines in the next couple months.

Single-family home starts “have disappointed” this year, according to Fannie Mae. In fact, they began to decline before interest rates began rising.

Fannie expects mortgage originations to total about $1.83 trillion for the year, down about 15 percent from last year.

“Sentiment toward housing also worsened following the government shutdown and debt ceiling debate despite low single-family mortgage rates and continued robust year-over-year home price gains,” Fannie stated in its outlook.

Overall consumption grew at 1.5 percent in the third quarter, well below the longstanding historical norm of 3.4 percent from the end of World War II through 2000, according to Duncan.

“Monthly data showed weakening momentum in real consumer spending and suggest a reluctance among consumers to take on more debt,” Duncan said.

However, while consumers were guarded, businesses “appeared to have shrugged off the fiscal uncertainty,” according to Fannie Mae, which reported “the strongest private sector payroll gains since February.”

Despite the improvement, Fannie reported that members of the Federal Reserve Open Market Committee (FOMC) generally view recent employment gains as “overstating the improvement in labor markets, given the drop in the labor force participation rate.”

Fannie Mae expects unemployment to fall to 6.5 percent by the middle of 2015.

In the meantime, despite fiscal uncertainty and policy issues weighing on the economy, the GSE predicts “sustained improvement” in the labor force will lead to a tapering of Federal Reserve asset purchases in March and a final cutoff in September.

Fannie expects the Federal Reserve to hold off on rising interest rates until the second half of 2015.