Zandi Says US Is ‘Uncomfortably Close’ to Recession

Hinzugefügt: 2026-05-30

[00:00:00]So, Mark, how soon is soon? When do we cross the line?

[00:00:04]Well, Kailey, how about today? That would be nice. You know, in the next few days, you know, a couple, three weeks. If it goes on much longer than that, I suspect that we'll see much higher oil prices than, our current today. There's, we're drawing down inventory and the strategic petroleum reserve is starting to fade. And if if we don't get a resolution, if the straight doesn't open, if we don't get more, production soon, then I think prices are gonna start to jump again. And we'll get to that $5 a gallon that mister Atwater was talking about, and that would be, I think, enough to push the already tenuous economy into into a recession. So it's gotta happen here very quickly in the next day, two days, three days, next week or so. Beyond that, I think we got a real problem.

[00:00:51]So we're on the threshold of a recession. It sounds like, Mark, we're at about 4 and a half dollars just south of that per gallon right now. Do we need to hit that $5 mark for the ingredients to be in place?

[00:01:04]Yeah. Well, you know, I don't I I think that's about right. I mean, we've done some simulations of, you know, what would it take, what kind of oil price, over what period of time would it take to push the economy into recession? And it's about a $125 a barrel. But, you know, right now, we're, closer to, today, we're down. We're closer to $90.95 bucks a barrel. But if we're at $1.25 and we stay there for, two, three months, that would be pretty consistent. I think if I did the arithmetic correct about $5 a gallon, maybe a little bit over, and that would, at that point, be enough to push the fragile economy into recession. And, you know, Joe, the thing that I worry about the most is the, consumer lower middle income households. They are under a lot of pressure, and you can see that very clearly in the data we got this week. If you look at real, disposable income, so that's, after inflation, after tax income, it's it's actually falling now on a year over year basis. So and that's the fodder for for spending.

[00:02:02]So if we get even higher prices, gas over five, and that those real incomes continue to decline, I think consumers at that point are gonna pack it in, and that would be enough to push us into recession. So we're we're, you know Okay. We're at ninety, ninety five, one twenty five would do it. So we're not there, but, you know, we're it we're we're uncomfortably close.

[00:02:21]Well and if we ultimately do get there, Mark, what then? Would you expect that there would be a policy response, either a fiscal policy response or a monetary one? Because what's the Fed to do if this is, once again, a supply driven inflation problem that could weigh on growth?

[00:02:38]Yeah. Good point, Kayla. I don't think anyone comes to the rescue here. It's hard to see fiscal policymakers getting it together quickly enough to to help out, you know, at least, you know, in in the amount of time that is necessary to do that. And I don't think the Federal Reserve will be in a position to come to the rescue either.

[00:02:59]I mean, if it's because of higher oil prices and inflation, that probably means that inflation expectations are also continuing to rise. And I think the Fed would be much more focused on getting that inflation inflation expectations back down than they would on the economy. They they would ultimately feel like, you know, it's necessary, to get that inflation even if it resulted in a recession. Because if they don't, then inflation will become more persistent, more entrenched, require even higher interest rates down the road, and result in an even deeper per more prolonged recession than all the would otherwise be the case. So take our lumps up front. So I just don't see congress, the administration, or the Federal Reserve coming to the rescue here if if in fact that scenario of 01/25, you know, comes to pass.

[00:03:49]So it's interesting that you don't necessarily expect that of even a Kevin Walsh led Federal Reserve. We were just hearing from the treasury secretary, Scott Bessent, who first sounded more optimistic about the consumer than you do, Mark, but also was talking about it being a new era at the Fed. Just listen quickly to him in the White House Briefing Room yesterday.

[00:04:07]I believe that we will get get through the that this challenging period now. They are on higher prices. On the other side of this, I've said publicly that I think we'll be back to substantial disinflation. But most importantly, I think we've got the wash fed now.

[00:04:25]And look. The economy that it it is challenging now, but unemployment is still low. Tax refunds were high, and consumer spending is still quite high. So, in in my private business over the years, I always looked at what were consumers doing, not what they were saying.

[00:04:48]We've got the Warsh Fed now. Mark Zandi is what he said. Do you believe the Warsh Fed will really treat this potential situation any differently than a Powell Fed would?

[00:04:58]No. I mean, potentially, chair Walsh would vote for a cut in that kind of scenario where things are going south and the economy is going into recession. But I doubt the rest of the Federal Reserve, the other folks that are making the decision would follow suit.

[00:05:14]You know, of course, former chair Powell is on the committee. And if you listen to Mhmm. Kind of the talk and speeches and comments being made by members of the Fed at the current time, they're not talking about rate cuts. More and more, they're talking about rate increases, and it goes back to inflation and inflation expectations. So I I I don't think it it matters whether Kevin Walsh's chair or not. I don't think there's enough support to to get enough enough votes to to, cut interest rates. And, I'm not sure that would be the right policy either. Right? Because if inflation and inflation expectations are high and rising, you need to get that back under control, regardless of what happens, you know, to the rest of the economy. Because if you don't, again, you're gonna have to raise rates even more down the road and result in an even deeper, longer recession with even higher unemployment. So, you you know, there's really no good choice here. So, no, I I don't think that that that the fact that, we now have a new chairman is gonna make a difference in terms of how this Fed behaves going forward in that scenario.