Employment data remains strong, consumer spending is healthy and the Federal Reserve recently paused its aggressive rate-increase policy. Meanwhile, dire warnings regarding the state of the U.S. economy from have gotten quieter as the economy at large keeps rolling along without the downward spiral that many have predicted.

So, what gives? Has the threat of recession been avoided? Not quite, according to Fannie Mae.

Recent commentary from the government-sponsored enterprise’s Economic and Strategic Research (ESR) Group said that while “mixed data” has muddled the outlook in recent months, a modest recession remains the most likely outcome.

It’s true that inflation has seen partial moderation and headline inflation remains on a trajectory of rapid deceleration. Per the Consumer Price Index (CPI), the annual rate of inflation fell from 4.9% in April to 4% in May. It’s anticipated to drop close to 3% in the months ahead. This slide is due in large part to sizable year-over-year decreases in energy prices, a shift that Fannie Mae attributes to tempering economic growth worldwide.

Core inflation — which includes all goods, services and commodities minus food and fuel prices, each of which are more volatile from month to month — has been more stubborn. It ended May at 5.3%, although it’s forecast to fall near 4% by year’s end. The ESR Group believes that the robust employment market, while nominally positive, may risk entrenchment of conditions that could keep core inflation persistently high. In this case, the ESR Group expects the Fed will keep its hawkish monetary policy in place until it’s clear that such inflation pressures from the labor market have retreated.

“Core inflation remains sticky, having not fallen as rapidly as other price measures, creating upside risk to the fed funds rate, as noted in the Federal Reserve’s summary of economic projections, and making it likely in our view that it maintains a restrictive posture for longer than most market participants initially anticipated,” said Doug Duncan, Fannie Mae senior vice president and chief economist.

Unfortunately, the evidence the central bank is looking for is unlikely to appear “until a recession is already unavoidable, making the question of a downturn more a matter of ‘when,’ not ‘if,’” Fannie’s commentary stated.

Meanwhile, other economic indicators either continue to lag or are trending south. The needle is pointing downward on manufacturing output, retail sales since January have been uninspiring, commercial real estate continues to struggle and unemployment claims are rising. Such risks are somewhat offset by strength in housing construction, rebounding auto production and resilient corporate profits, but taken altogether, Fannie still sees the economy decelerating with additional headwinds “likely forthcoming.” For one, the resumption of student loan payments in the latter half of the year is expected to stifle consumer spending.

Meanwhile, as it relates to the housing market, Fannie’s outlook is likewise muddled, although it borders on cautiously optimistic. The lack of resale inventory continues to buoy real estate market dynamics, helping to reverse faltering home price growth and fueling new construction activity. The ESR Group still predicts that housing starts will moderate if and when the business cycle slows — but if the economy manages not to fully descend into a downturn, Fannie sees “substantial upside risk” to its forecasts of new home sales and starts.

“Housing prices continue to show stronger growth than what was previously expected given the suddenness and significant magnitude of mortgage rate increases,” Duncan said. “Housing’s performance is a testimony to the strength of demographic-related demand in the face of baby boomers aging in place and Gen Xers locking in historically low rates, both of which have helped keep housing supply at historically low levels.

“Homebuilders continue to add to that supply, but years of meager homebuilding over the past business cycle means the imbalance will likely continue for some time. We do expect housing will be supportive of the overall economy as it exits the modest recession.”