Key facts
- Moody's Analytics chief economist Mark Zandi believes the US economy is growing below its potential.
- Zandi notes that GDP growth is occurring but is not at a healthy rate.
- He points to stalled real wage growth and accelerating inflation, particularly from fuel costs.
- Zandi expresses concern over the Federal Reserve's inability to cut interest rates due to inflation.
- He suggests that the Iran war and tariffs are contributing to inflation exceeding the Fed's target.
Moody's Analytics chief economist Mark Zandi has expressed concerns about the US economy, despite recent GDP growth. He stated in a newsletter that the economy is growing below its potential, creating a tenuous situation where rising unemployment and falling participation could undermine growth. Zandi has previously warned about the negative impacts of Donald Trump's tariff and immigration policies, forecasting a potential recession in 2025. He noted that while the economy has shown resilience, current headwinds, including surging consumer prices driven by fuel costs from the Iran war, are cause for concern. Zandi highlighted that real wage growth has stalled due to a soft job market and accelerating inflation, leading to no growth in real disposable income over the past year. He also expressed apprehension regarding the Federal Reserve's policy stance under Chair Kevin Warsh, particularly the central bank's limited capacity to cut interest rates. Zandi believes the below-potential growth and developing slack in the economy would normally warrant interest rate cuts, especially with the federal funds rate target above estimates of the neutral rate. However, he noted that tariffs and the Iran war have pushed inflation significantly above the Fed's 3% target. Zandi warned that if inflation expectations continue to rise, the Fed may prioritize bringing inflation down, potentially leading to a recession, even though he believes short-term economic pain is preferable to worse long-term conditions. He emphasized that for the economy to avoid derailing, the Iran war needs to end soon to normalize global oil production and prices, and the buildout of artificial intelligence must continue to contribute to overall growth.