Wall Street hits Trump with disturbing recession warning as oil prices spike
Wall Street has undercut the Trump administration with a stark new warning that surging oil prices could tip the US into recession.
Before the war began, investment firm Moody’s said that job losses and weakening GDP meant there was a 49 percent chance that the US economy could enter an economic slump in the next 12 months.
Now one of its leading analysts has warned that high oil prices have pushed the probability of a recession above 50 percent.
'Behind the recent jump are primarily the weak labor market numbers, but almost all the economic data has turned soft since the end of last year,' wrote Moody's chief economist Mark Zandi.
The Moody’s recession indicator has a strong historical record, having accurately predicted recessions in 2020, 2007 and 2001.
But the Moody’s warning flies in the face of statements out of the Trump administration.
‘The economy is still fundamentally sound,’ National Economic Council director Kevin Hassett told CNBC last week, claiming that even if the Iran war went on much longer, ‘it wouldn’t really disrupt the US economy very much at all.’
Apart from the brief Covid-19 pandemic downturn, every US recession since World War II was preceded by a spike in oil prices - and this time it’s no different.
The Moody's recession indicator is dangerously close to a level that calls for a US recession
According to Mark Zandi, almost all US economic data has turned soft since the end of 2025
The Moody’s model has been fairly accurate in calling recent recessions. The measure jumped above 50 percent in 2020, 2007 and 2001 - and each time recessions followed.
Wall Street, the White House and central bankers fundamentally disagree on how high oil prices may need to rise for how long to trigger a recession.
Analysts from investing giant Vanguard wrote earlier this month that oil prices would need to remain at $150 per barrel the rest of the year to spark a recession in the US.
Wells Fargo said that ‘sustained’ oil prices above $130 would ‘materially raise the risk of recession.’
For its part, the Federal Reserve has stayed mum on the subject. At the March Fed meeting last week, the US central bank merely warned that the Iran conflict ‘presents uncertainties for the economy.’
'Nobody knows what the economic impacts of the war and higher oil prices will be,' Fed chair Powell told reporters after the meeting.
The definition of what constitutes a US recession can be a bit vague. A government agency called the National Bureau of Economic Research (NBER) officially defines a recession as ‘a significant decline in economic activity spread across the economy, lasting more than a few months.’
The NBER judges when US recessions begin and end, and makes its calls based on a variety of economic data like GDP, income, employment, industrial production and retail sales.
Recent economic reports have been weaker than expected: The US lost 92,000 jobs in February and the unemployment rate ticked up to 4.4%, and the government has downgraded its estimate for fourth-quarter 2025 GDP, cutting it from +1.4 percent to just +0.7 percent.
How should the US handle rising oil prices to protect jobs and avoid another recession?
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Thanks to growing domestic oil production in the US, rising global oil prices don’t do the same economic damage as in years past.
But the economy is hardly immune to higher oil and gasoline prices, especially as US consumers were already nervous before the Iran conflict began.
Despite the growing evidence that the US economy is under pressure and recession risks are rising, economists are loath to utter the word recession.
Many repeatedly called for the imminent arrival of a slump in the wake of the Federal Reserve's interest rate hikes over recent years - but they got the call badly wrong.
Nevertheless, everyone agrees that if oil prices remain elevated for much longer, a recession will be difficult to avoid.
