Economists on Wall Street have significantly increased their risk assessments for a U.S. recession, citing heightened geopolitical uncertainty and persistent strains in the labor market over the past year [1]. Mark Zandi, chief economist at Moody's Analytics, stated, "I'm concerned recession risks are uncomfortably high and on the rise. Recession is a real threat here" [1]. The ongoing war with Iran has intensified concerns, with forecasters attributing much of the elevated risk to the conflict and its impact on oil prices [1].
Moody's Analytics' model now places the probability of a U.S. recession in the next 12 months at 48.6%, up from the typical 20% risk seen in normal times [1]. Goldman Sachs has raised its estimate to 30%, Wilmington Trust to 45%, and EY Parthenon to 40%, noting that these odds could increase further if the Middle East conflict becomes more prolonged or severe [1]. The labor market has also shown signs of weakness, with hundreds of thousands of jobs lost outside the health care sector last year [1].
Oil prices have surged, with AAA reporting a $1.02 per gallon increase at the pump over the past month, representing a 35% jump [1]. Historically, oil shocks have preceded nearly every U.S. recession since the Great Depression, except for the Covid pandemic [1]. Mark Zandi warned, "The negative consequences of higher oil prices happen first and fast," and suggested that if prices remain elevated through Memorial Day or the end of the second quarter, a recession is likely [1].
Federal Reserve Chair Jerome Powell has rejected the characterization of the current environment as stagflation, but acknowledged the challenges posed by balancing threats to the labor market against persistent inflation [1]. Zandi and other economists maintain a baseline expectation that diplomatic solutions may avert the worst-case scenario, but the risks remain elevated as Wall Street forecasters continue to raise their recession outlooks [1].
CONCLUSION
Wall Street economists have sharply increased their recession forecasts for the U.S., driven by the Iran war and surging oil prices. The elevated risk poses significant challenges for policymakers and markets, with the outlook hinging on geopolitical developments and energy price trends.