Moody's Mark Zandi says the economy is flashing a warning sign even as GDP keeps growing
Moody's Mark Zandi says the economy is flashing a warning sign even as GDP keeps growing
Samuel O'BrientThu, June 4, 2026 at 6:50 PM UTC
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Moody's Analytics chief economist Mark Zandi sees more trouble ahead for the US economy.
He recently wrote that while GDP has increased, it's still below what it should be.
In his view, the economy is growing below its full potential and the Fed isn't likely to help.
The US economy may be growing, Moody's chief economist Mark Zandi says that doesn't mean it's in a healthy state.
The economist hasn't been shy lately about his bearishness on what's ahead of the US. In his most recent newsletter, Zandi noted that while GDP has risen this year and the economy appears resilient, he sees warning signals flashing.
"The economy is growing, but at a rate below its potential, so the situation is tenuous," he said. "Unless growth picks up, unemployment will rise and participation will fall, and at some point, undermine growth altogether."
Zandi has repeatedly warned of the negative impact on the US economy caused by Donald Trump's tariff and immigration policies. In 2025, he described it as being on the edge of recession, a forecast that grew increasingly more bearish in the months that followed.
He acknowledged in the newsletter that the economy held up despite the headwinds he's been seeing, but he sees more cause for concern as consumer prices, specifically fuel costs pushed higher by the Iran war, surge. He's among the forecasters who have said the impacts of the war will offset the benefits of the Trump administration's tax cuts.
But Zandi sees issues cropping up elsewhere, too.
"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."
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Then there's monetary policy. Zandi highlighted potential problems he sees as a new era begins under Federal Reserve chair Kevin Warsh. Despite initially describing him as a "reasonable choice" to lead the central bank, Zandi said he has concerns.
Specifically, he's worried about the fact that the central bank isn't in a position to pursue policy that would boost the economy and prop up job growth, namely, cut interest rates.
"The below-potential growth and developing slack in the economy would argue for interest rate cuts, particularly since the federal funds rate target remains above estimates of the neutral rate," Zandi noted. "But the tariffs and the Iran war have pushed inflation to well over 3% and close to 4%, double the Fed's inflation target."
Inflation expectations have surged during the Iran war. Zandi said that if expectations continue rising, it will likely prompt the Fed to raise rates, even if it leads to a full on recession, as policymakers will see bringing inflation down as a top priority.
Zandi made it clear he doesn't see this as a good strategy, adding that economic pain in the short term should be preferable to worse economic conditions in the months ahead.
"For the economy to avoid being derailed, first and foremost, the Iran war must end soon, normalizing global oil production and prices," he said. "The buildout of artificial intelligence and its contribution to overall growth must also continue apace."
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Source: “AOL Money”
