Moody’s economist warns recession is once again a ‘serious threat’

Zandi said recession odds were 'uncomfortably high' before Iran conflict

Gas prices have risen about 80 cents a gallon since the end of February

White House insists gas price pain will be short-lived and economy is solid

Zandi said recession odds were 'uncomfortably high' before Iran conflict

Gas prices have risen about 80 cents a gallon since the end of February

White House insists gas price pain will be short-lived and economy is solid

(NewsNation) — The odds of a U.S. recession were already elevated before tensions escalated in the Middle East, but rising oil prices could increase the risk of a downturn.

Moody’s Analytics chief economist Mark Zandi warned Monday in a post on social platform X that a recession is “once again a serious threat.” He said weak labor market data had already helped push the odds of a recession within the next year to 49 percent — an “uncomfortably high” level — before the conflict with Iran.

“It isn’t a stretch to expect the indicator to cross the key 50% threshold amid the Iranian conflict and the resulting surge in oil prices,” Zandi added.

The war with Iran has disrupted tanker traffic through the Strait of Hormuz, a narrow waterway through which roughly a fifth of the global oil supply typically passes. That blockage has rattled global energy markets and prompted a coordinated release of oil from strategic reserves.

Zandi said that if oil prices remain elevated “for much longer (weeks and not months)” then a recession will be “difficult to avoid.” He noted that every recession since World War II, aside from the pandemic, has been preceded by a spike in oil prices.

“Higher oil prices don’t do the same economic damage as in years past, as we produce as much as we consume, but consumers still get hit hard and fast,” he wrote.

Prices at the gas pump have already risen about 80 cents a gallon since the end of February, according to AAA data. The national average for a gallon of regular stood at $3.79 as of Tuesday, while diesel prices have climbed above $5.

White House says economy remains strong

President Trump has downplayed concerns over rising fuel costs and said he expects gas prices to drop quickly once the conflict ends. Nevertheless, the president has authorized a plan to tap into the nation’s strategic reserves, releasing 172 million barrels of oil in an effort to ease prices.

National Economic Council Director Kevin Hassett told CNBC on Tuesday that the U.S. economy is still “fundamentally sound,” and that even if the conflict extends beyond the expected 4-6 week timeline, “it wouldn’t really disrupt the U.S. economy very much at all.”

“We’re very confident that this thing is going ahead of schedule,” Hassett said.

Other forecasts suggest oil prices may need to rise above current levels to trigger a recession.

Vanguard analysts wrote earlier this month that oil prices would need to remain at $150 per barrel the rest of the year to “induce a U.S. recession,” along with weaker asset prices and higher interest rates.

Wells Fargo analysts said in a report that “sustained prices” north of $130 per barrel — roughly double the pre-conflict baseline — would “materially raise the risk of recession.”

Still, the oil price shock comes at a time when the U.S. economy’s margin for error is narrow, the bank’s report warned.

The U.S. lost a surprising 92,000 jobs in February as the unemployment rate ticked up to 4.4 percent, the Labor Department reported earlier this month. Revisions also cut 69,000 jobs from December and January payrolls.

Last week, the Commerce Department sharply downgraded its estimate for fourth-quarter 2025 GDP growth, cutting it from 1.4 percent to just 0.7 percent.

Federal Reserve policymakers are widely expected to hold interest rates steady at this week’s meeting, suggesting a wait-and-see approach amid the recent uncertainty.

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