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Moody’s drops stunning take on the economy

TST (Full) - (Official Feed) — Sun, 07 Jun 2026 22:17:00 GMT

The U.S. economy seems to be doing fine on the surface.

However, according to a Business Insider report by Samuel O'Brient, Moody's economist Mark Zandi sees a far weaker story brewing beneath the surface.

Zandi's core argument is that, while the economy isn’t recession territory, growth may be too weak to keep it out of trouble, especially as inflation begins to creep higher and the Federal Reserve finds itself boxed in.

For perspective, the New York Fed yield-curve model puts the probability of a U.S. recession over the next year at 14.98% through May 2027.

That’s a considerable drop from roughly 18.8% in March 2026, suggesting the market-implied recession signal has eased out.

That makes for a remarkably testing setup for households, investors, and policymakers.

If we witness slower growth, unemployment levels could rise.

On the flipside, if inflation rises, the Fed might not have room to cut rates. Moreover, fuel prices add another dynamic, pressuring consumers further as wage growth cools.

Moody’s economist Mark Zandi warns economic growth is masking deeper risks facing the economy

Bloomberg / Getty Images

Gas prices add fresh heat to inflation

As Zandi puts it, consumer inflation is becoming harder to dismiss as a short-term issue.

AAA has the national average for regular gas at $4.174 on June 7, up substantially from $3.131 in the prior year, but behind the record $5.016 set on June 14, 2022.
Gas prices cooled from $4.558 a month ago, but remain strong enough to squeeze consumers, keeping energy inflation in the broader conversation.
The latest CPI report showed prices rising from 0.6% in April and 3.8% over the past year.
Core inflation, which strips away food and energy, jumped 2.8% year-over-year, while shelter surged 3.3% and airline fares jumped 20.7%.

Zandi says the economy is growing, but not fast enough

Zandi argues that a positive GDP growth figure doesn’t automatically indicate a healthy economy.

MoreEconomy:

Though he agrees that the economy is expanding, it isn’t growing fast enough to absorb the pressure building beneath the surface.

“The economy is growing, but at a rate below its potential, so the situation is tenuous,” Zandi said. “Unless growth picks up, unemployment will rise, and participation will fall, and at some point, undermine growth altogether.”

According to him, a sub-par economy may look stable for a while.

Businesses might continue hiring, as the latest jobs report suggests, and consumers may keep spending. However, if economic growth remains too weak, cracks could begin to appear in the labor market.

Zandi has sounded the alarm for months on Trump’s tariff and immigration policies, raising recession-related risks.

In fact, for much of 2025, he felt the economy was on the brink of a recession, but his tone has since grown far more cautious.

He points to a fragile expansion that requires stronger growth before the weakness in jobs and wages feeds back into the economy.

U.S. real GDP growth over the past five years

2020: -2.2%.
2021: +6.2%.
2022: +2.5%.
2023: +2.9%.
2024: +2.8%.
2025: +2.1%.
2026 so far: +1.6% annualized in Q1, based on the BEA’s second estimate.
Source: BEA real GDP data via FRED for annual figures; BEA’s latest Q1 2026 GDP release for this year’s figure.

Inflation leaves the Fed boxed in

Zandi’s second big concern is that inflationary pressures might prevent the Fed from helping the economy if growth rates weaken.

Typically, when we see below-potential growth rates alongside a weak job market, the Fed has room to cut rates.

Zandi feels the argument is especially valid because currently, the federal funds rate is hovering above estimates of the neutral rate.

Nevertheless, the thorn in the side is inflation.

Tariffs and the Iran war pushed inflation to “well over 3% and close to 4%,” roughly double the Fed’s 2% target.

Moreover, fuel prices linked to the Iran War added significant pressure, while he also said the war’s economic damage might offset the benefits of Trump’s tax cuts.

“The soft job market is depressing wage growth, and with inflation accelerating, real wage growth has all but stalled,” Zandi said. “Real disposable income has not grown over the past year.”

That leads to a dicey policy trap.

If we continue to see inflation expectations rise, Zandi feels the Fed might need to raise rates, even if it increases the risk of a recession.

In fact, analysts at Goldman Sachs recently doubled down on their view that interest rate cuts may come later than previously expected.

The escape route, though, is pretty clear.

The Iran war needs to end, oil prices should normalize, and AI investment needs to support growth.

Speaking of AI, Fed President Mary Daly recently offered a blunt assessment, saying that 2027 could serve as a litmus test for AI stocks.

Moody’s drops stunning take on the economy

TST (Full) - (Official Feed) — Sun, 07 Jun 2026 22:17:00 GMT

The U.S. economy seems to be doing fine on the surface.

However, according to a Business Insider report by Samuel O'Brient, Moody's economist Mark Zandi sees a far weaker story brewing beneath the surface.

For perspective, the New York Fed yield-curve model puts the probability of a U.S. recession over the next year at 14.98% through May 2027.

That’s a considerable drop from roughly 18.8% in March 2026, suggesting the market-implied recession signal has eased out.

That makes for a remarkably testing setup for households, investors, and policymakers.

If we witness slower growth, unemployment levels could rise.

On the flipside, if inflation rises, the Fed might not have room to cut rates. Moreover, fuel prices add another dynamic, pressuring consumers further as wage growth cools.

Moody’s economist Mark Zandi warns economic growth is masking deeper risks facing the economy

Bloomberg / Getty Images

Gas prices add fresh heat to inflation

As Zandi puts it, consumer inflation is becoming harder to dismiss as a short-term issue.

AAA has the national average for regular gas at $4.174 on June 7, up substantially from $3.131 in the prior year, but behind the record $5.016 set on June 14, 2022.
Gas prices cooled from $4.558 a month ago, but remain strong enough to squeeze consumers, keeping energy inflation in the broader conversation.
The latest CPI report showed prices rising from 0.6% in April and 3.8% over the past year.
Core inflation, which strips away food and energy, jumped 2.8% year-over-year, while shelter surged 3.3% and airline fares jumped 20.7%.

Zandi says the economy is growing, but not fast enough

Zandi argues that a positive GDP growth figure doesn’t automatically indicate a healthy economy.

MoreEconomy:

Though he agrees that the economy is expanding, it isn’t growing fast enough to absorb the pressure building beneath the surface.

According to him, a sub-par economy may look stable for a while.

Businesses might continue hiring, as the latest jobs report suggests, and consumers may keep spending. However, if economic growth remains too weak, cracks could begin to appear in the labor market.

Zandi has sounded the alarm for months on Trump’s tariff and immigration policies, raising recession-related risks.

In fact, for much of 2025, he felt the economy was on the brink of a recession, but his tone has since grown far more cautious.

He points to a fragile expansion that requires stronger growth before the weakness in jobs and wages feeds back into the economy.

U.S. real GDP growth over the past five years

2020: -2.2%.
2021: +6.2%.
2022: +2.5%.
2023: +2.9%.
2024: +2.8%.
2025: +2.1%.
2026 so far: +1.6% annualized in Q1, based on the BEA’s second estimate.
Source: BEA real GDP data via FRED for annual figures; BEA’s latest Q1 2026 GDP release for this year’s figure.

Inflation leaves the Fed boxed in

Zandi’s second big concern is that inflationary pressures might prevent the Fed from helping the economy if growth rates weaken.

Typically, when we see below-potential growth rates alongside a weak job market, the Fed has room to cut rates.

Zandi feels the argument is especially valid because currently, the federal funds rate is hovering above estimates of the neutral rate.

Nevertheless, the thorn in the side is inflation.

Tariffs and the Iran war pushed inflation to “well over 3% and close to 4%,” roughly double the Fed’s 2% target.

Moreover, fuel prices linked to the Iran War added significant pressure, while he also said the war’s economic damage might offset the benefits of Trump’s tax cuts.

“The soft job market is depressing wage growth, and with inflation accelerating, real wage growth has all but stalled,” Zandi said. “Real disposable income has not grown over the past year.”

That leads to a dicey policy trap.

If we continue to see inflation expectations rise, Zandi feels the Fed might need to raise rates, even if it increases the risk of a recession.

In fact, analysts at Goldman Sachs recently doubled down on their view that interest rate cuts may come later than previously expected.

The escape route, though, is pretty clear.

The Iran war needs to end, oil prices should normalize, and AI investment needs to support growth.

Speaking of AI, Fed President Mary Daly recently offered a blunt assessment, saying that 2027 could serve as a litmus test for AI stocks.

Moody’s drops stunning take on the economy

Moz Farooque — Sun, 07 Jun 2026 22:17:00 GMT

The U.S. economy seems to be doing fine on the surface.

However, according to a Business Insider report by Samuel O'Brient, Moody's economist Mark Zandi sees a far weaker story brewing beneath the surface.

For perspective, the New York Fed yield-curve model puts the probability of a U.S. recession over the next year at 14.98% through May 2027.

That’s a considerable drop from roughly 18.8% in March 2026, suggesting the market-implied recession signal has eased out.

That makes for a remarkably testing setup for households, investors, and policymakers.

If we witness slower growth, unemployment levels could rise.

On the flipside, if inflation rises, the Fed might not have room to cut rates. Moreover, fuel prices add another dynamic, pressuring consumers further as wage growth cools.

Moody’s economist Mark Zandi warns economic growth is masking deeper risks facing the economy

Bloomberg / Getty Images

Gas prices add fresh heat to inflation

As Zandi puts it, consumer inflation is becoming harder to dismiss as a short-term issue.

AAA has the national average for regular gas at $4.174 on June 7, up substantially from $3.131 in the prior year, but behind the record $5.016 set on June 14, 2022.
Gas prices cooled from $4.558 a month ago, but remain strong enough to squeeze consumers, keeping energy inflation in the broader conversation.
The latest CPI report showed prices rising from 0.6% in April and 3.8% over the past year.
Core inflation, which strips away food and energy, jumped 2.8% year-over-year, while shelter surged 3.3% and airline fares jumped 20.7%.

Zandi says the economy is growing, but not fast enough

Zandi argues that a positive GDP growth figure doesn’t automatically indicate a healthy economy.

MoreEconomy:

Though he agrees that the economy is expanding, it isn’t growing fast enough to absorb the pressure building beneath the surface.

According to him, a sub-par economy may look stable for a while.

Businesses might continue hiring, as the latest jobs report suggests, and consumers may keep spending. However, if economic growth remains too weak, cracks could begin to appear in the labor market.

Zandi has sounded the alarm for months on Trump’s tariff and immigration policies, raising recession-related risks.

In fact, for much of 2025, he felt the economy was on the brink of a recession, but his tone has since grown far more cautious.

He points to a fragile expansion that requires stronger growth before the weakness in jobs and wages feeds back into the economy.

U.S. real GDP growth over the past five years

2020: -2.2%.
2021: +6.2%.
2022: +2.5%.
2023: +2.9%.
2024: +2.8%.
2025: +2.1%.
2026 so far: +1.6% annualized in Q1, based on the BEA’s second estimate.
Source: BEA real GDP data via FRED for annual figures; BEA’s latest Q1 2026 GDP release for this year’s figure.

Inflation leaves the Fed boxed in

Zandi’s second big concern is that inflationary pressures might prevent the Fed from helping the economy if growth rates weaken.

Typically, when we see below-potential growth rates alongside a weak job market, the Fed has room to cut rates.

Zandi feels the argument is especially valid because currently, the federal funds rate is hovering above estimates of the neutral rate.

Nevertheless, the thorn in the side is inflation.

Tariffs and the Iran war pushed inflation to “well over 3% and close to 4%,” roughly double the Fed’s 2% target.

Moreover, fuel prices linked to the Iran War added significant pressure, while he also said the war’s economic damage might offset the benefits of Trump’s tax cuts.

“The soft job market is depressing wage growth, and with inflation accelerating, real wage growth has all but stalled,” Zandi said. “Real disposable income has not grown over the past year.”

That leads to a dicey policy trap.

If we continue to see inflation expectations rise, Zandi feels the Fed might need to raise rates, even if it increases the risk of a recession.

In fact, analysts at Goldman Sachs recently doubled down on their view that interest rate cuts may come later than previously expected.

The escape route, though, is pretty clear.

The Iran war needs to end, oil prices should normalize, and AI investment needs to support growth.

Speaking of AI, Fed President Mary Daly recently offered a blunt assessment, saying that 2027 could serve as a litmus test for AI stocks.

Big jump

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