Top economist Mark Zandi says recession risk is 'rising significantly,' but he still sees a path to avoid it
NABE
- Moody's Analytics chief economist Mark Zandi still sees a high risk of a recession.
- But he also thinks the US may be able to avoid one if it can "get out of its own way."
- In his view, that means avoiding damaging tariff policies and ending the Iran war.
Market Zandi is among the prominent market voices that continue to sound alarms about the state of the economy, but he also recently revealed he still sees a path to avoid a major downturn.
In a recent webcast hosted by commercial real estate firm Marcus & Millichap, Zandi said that he thinks the US can sidestep a recession if it can "get out of its own way" and pivot from some of the damaging policies he's previously warned against.
"What I meant about getting out of our way is to avoid making counterproductive policy choices, such as broad-based tariffs, heavy-handed immigration policies, and seemingly vexed foreign policy decisions," he told Business Insider. "It is also critical that the Federal Reserve remain independent. It is the policy headwinds that are significantly raising the threat of recession."
During the webcast, Zandi noted that while his model's base case doesn't forecast a recession in the next 12 months, he considers the current odds to be highly elevated at 40%, which he sees as an indication that US economic growth remains fragile.
The economist also said that the path he sees to avoid a recession would require a significant shift in economic policy from the White House, including abandoning tariffs and ending the Iran war soon.
It would also require the Federal Reserve to keep interest rates steady, which he thinks is likely to happen for most of the remaining year until data shows inflation coming down.
"Do you respond to the weaker economy and job market by cutting interest rates, or do you respond to the higher inflation and raise interest rates?" Zandi said. "The answer is, you don't. You just kind of try to thread the needle and kind of sit on your hands and do nothing."
Zandi also touched on the AI boom. While he credited the rise of AI with helping offset the economic drag of the tariffs and the Iran war, he noted that its impact on jobs hasn't really shown up in margins yet, but he thinks it will in the near future.
While Zandi has predicted that early 2026 job growth isn't likely to continue, he maintains that if the US continues moving in the right policy direction, the job market can recover.
"Monthly job growth is 50, 75k per month, not gangbusters," he said. "We're not going back to those days because we still lack the labor supply, but that's the kind of world we can get back to. We just got to get out of our own way."