The US recession odds have climbed to 49% over the next 12 months, according to Moody’s Analytics chief economist Mark Zandi, a sharp warning at a moment when investors are weighing the economic fallout from rising geopolitical tensions and higher energy prices.
Zandi said the US recession odds were already nearing a critical threshold even before the latest US and Israeli strikes on Iran. In a recent note, he pointed to February data from Moody’s recession indicator, which showed the probability of a downturn approaching 50%, a level that has historically signaled serious economic trouble.
A warning signal gets harder to ignore
According to Zandi, the recent deterioration is being driven mainly by softer labor market data, though he said weakness is now visible across a broader range of economic indicators. Growth signals that had held up through much of last year have begun to fade, suggesting the economy is losing momentum at a more vulnerable time.
That matters because Moody’s recession indicator has previously moved above the 50% mark ahead of recessions in 2001, 2007, and 2020. While no forecasting model is perfect, the historical pattern gives added weight to the latest reading, especially as oil prices come back into focus as a macroeconomic risk.
Zandi argued that energy prices remain one of the most important variables in the model. He noted that, apart from the pandemic downturn, every US recession since World War II has been preceded by a meaningful spike in oil prices. If the current conflict keeps prices elevated for more than a short period, that risk could intensify quickly.
Why oil still matters, even in a different economy
Economists have long debated whether oil shocks carry the same force they once did. The US economy is less exposed than in previous decades because domestic energy production has improved and the balance between production and consumption is stronger. Even so, households remain highly sensitive to sudden increases in fuel and living costs.
That is one reason the current moment is attracting so much attention. Consumers have already shown signs of fatigue after a prolonged period of inflation and elevated borrowing costs. A sustained jump in gasoline and transport costs could further pressure spending, which remains the main engine of US economic growth.
Zandi’s view is more cautious than much of Wall Street. Oxford Economics has suggested that oil would likely need to rise to around $140 a barrel for two months to push the global economy into recession. Its economists have also noted that the recovery path would depend heavily on how quickly shipping through the Strait of Hormuz returns to normal after any disruption.
Wall Street is uneasy, but not fully convinced
Other major financial institutions are still assigning lower probabilities to a downturn. Goldman Sachs recently raised its recession estimate by 5 percentage points to 25%, while JPMorgan had projected late last year that the odds of a 2026 recession stood at 35%.
Oxford Economics has also struck a more measured tone in its latest Global Risk Survey. Conducted between February 26 and March 11, the survey showed a clear deterioration in sentiment after the conflict escalated, but respondents still placed the probability of a global recession at roughly one in six.
The same survey also suggested confidence in the US economy is slipping. Before the recent military action, about three-quarters of respondents expected US outperformance to continue. That figure later dropped to just over half, indicating that the idea of sustained US exceptionalism is losing some support.
Are economists too cautious to say the word?
Zandi suggested many economists remain reluctant to openly predict a recession, even as the data soften. Part of that hesitation reflects the forecasting errors made a few years ago, when many expected aggressive Federal Reserve tightening to trigger a downturn that never fully materialized.
That history has made forecasters more careful about making bold recession calls. Still, Zandi argued that caution should not obscure the underlying trend. If oil prices stay high for weeks rather than days, he said, avoiding a recession could become increasingly difficult.
Not everyone shares that level of concern. Apollo chief economist Torsten Slok has argued that full-economy recessions may be becoming less frequent, with sector-specific downturns now playing a bigger role. In that view, weakness can emerge in areas such as software or commercial credit without necessarily dragging the broader economy into contraction.
For investors and policymakers, the divide in forecasts underscores a more complex reality. The economy is not yet in recession, but the margin for error is narrowing. With labor data weakening, consumer confidence under pressure, and energy markets vulnerable to further shocks, the next few weeks may determine whether recession fears remain a warning or become the central economic story of 2026.
