US recession odds top 49% as oil shock spurs market downturn
Moody's Zandi warns downturn 'difficult to avoid' if elevated energy prices persist for weeks
The probability of a US recession has climbed past 49%, marking a level that Moody's Analytics chief economist Mark Zandi describes as "uncomfortably high", as surging oil prices stemming from the Iran conflict threaten to push the economy into contraction.
Zandi warned that the downturn probability would "cross the key 50% threshold" if energy prices remain elevated for an extended period, specifying "weeks and not months." The assessment comes as Brent crude futures have surged 46.67% over the past month, reaching $103.18 per barrel on March 17, up from approximately $70 before hostilities began February 28.
The recession risks had already reached "uncomfortably high" levels before the Iran conflict escalated, according to Moody's machine-learning-based leading economic indicator model. Weak labor market numbers and broadly softening economic data since late last year had already positioned the economy on precarious footing.
Oil prices carry substantial weight in Moody's model, with Zandi noting that nearly every recession since World War II—excluding the pandemic downturn—was preceded by a spike in energy costs. Although the US now produces as much oil as it consumes, which mitigates broader economic damage compared to past decades, consumers face a direct hit from higher gasoline prices.
Equity markets have reflected the growing anxiety. The S&P 500 shed 1.6% during the week ending March 16 and is down 3.12% year-to-date, according to market data. The index has fallen 3.59% since the Iran war began on February 28 and remains 4.96% below its record high reached January 27.
Prediction markets have shown similar deterioration, with odds of a US recession in 2026 spiking to 33% on March 9, up from 22% just one week prior. Goldman Sachs has raised its 12-month US recession probability to 25%, citing stagflation risks from sustained higher oil prices.
Zandi suggested that many economists remain reluctant to vocalize recession concerns given previous incorrect predictions following Federal Reserve monetary tightening, but the combination of soft domestic data and energy inflation may soon force the conversation. "If oil prices stay elevated for even a few more weeks, a recession will be hard to avoid," he stated in the analysis.