Fears are mounting that a recession is nearly upon us, with a growing number of banks and investors joining the chorus or warnings that an economic contraction within the next few years is likely.

U.S. inflation continues to sit at a four-decade high, and the Federal Reserve is aggressively raising interest rates to fight it. These two factors could combine to create a slowdown in growth, and likely tip the U.S. economy into a moderate recession, according to the latest economic outlook report released this week by Fannie Mae, a federally-backed mortgage guarantor.

The report reaffirms Fannie Mae’s earlier prediction that a modest recession is likely to hit in the second half of 2023, with the Fed unlikely to hit its target of a “soft landing” for the economy—wherein higher borrowing rates lead inflation to subside without a significant decline in consumer activity or a rise in unemployment. 

But rapidly rising interest rates and turmoil in the global market, exacerbated by the economic ramifications of the Ukraine War, is adding another layer of uncertainty to the forecasts, and the mortgage company writes that a contraction occurring before the end of next year is not out of the question.

“Financial conditions have tightened significantly, and the economy is slowing faster than previously expected as markets adjust to the Federal Reserve’s tightening guidance,” Doug Duncan, senior vice president and chief economist at Fannie Mae, said in a statement.

A constrained global supply of agricultural products is raising the likelihood that a food unaffordability crisis could hit the U.S., and the Biden administration has already announced measures to increase domestic agricultural production. In developed countries where food prices are rising fastest, such as the U.K., food affordability is already becoming an issue. 

Food prices are likely to be major contributors to an economic recession, exacerbated by an ongoing surge in housing prices in the U.S., with fewer potential buyers able to afford them, according to Fannie Mae.

The lender’s last report predicted that a strong housing market might help cushion the blow of a recession, but in its May forecast, the company concedes that the rising mortgage rates will likely contribute to a significant slowdown in home sales as early as this quarter. 

Eventually, this will lead to a deceleration of the historically high home prices buyers have been saddled with for the past few years, as high mortgage rates pull more prospective buyers out of the market. But while the housing market is unlikely to cool enough for the economy to crash as it did in 2008, the decline in home sales will be enough to contribute to a moderate recession and economic contraction.

“Historically, rapid and substantial rises in mortgage rates have had the effect of slowing activity,” Duncan said. “Not only is the worsening affordability of homes a problem for potential entry-level homebuyers, but current homeowners are less likely to trade in their existing lower-rate mortgages and list their homes for sale, both of which will likely weigh on sales.”