Mark Zandi, chief economist at Moody’s Analytics, is sounding the alarm for a potential U.S. recession—and he doesn’t believe the Federal Reserve will be able to stop it.
In a series of recent posts, Zandi warned that the U.S. economy is “on the precipice of recession,” citing deteriorating consumer spending, weakness in construction and manufacturing, and limited capacity for the Fed to respond effectively due to rising inflation pressures.
“For the Fed, coming to the rescue is a lot harder with inflation picking up again,” Zandi noted. While market participants increasingly expect rate cuts in the near term, Zandi argues that such moves will likely be insufficient to prevent a downturn.
Instead, he points to two more powerful structural forces undermining the economy: trade policy and immigration restrictions. “Tariffs are cutting increasingly deeply into the profits of American companies and the purchasing power of American households,” he said. “Fewer immigrant workers means a smaller economy.”
Zandi’s comments come as the economic picture grows more clouded. Despite a low headline unemployment rate, job growth is slowing, and labor force dynamics are deteriorating. The Bureau of Labor Statistics reported just 73,000 new jobs added in July—well below expectations—adding to evidence that the labor market is losing steam.
He also highlighted a flattening trend in labor force growth. Participation is slipping, and the number of foreign-born workers is declining, further constraining economic expansion. “The labor force has gone sideways,” Zandi said, referring to both domestic participation trends and immigration-driven workforce reductions.
Meanwhile, political pressure on the Fed continues to mount. Former President Donald Trump and his allies have called repeatedly for steep rate cuts, framing monetary easing as essential to combat economic weakness. Some Fed officials appear sympathetic to that view. But Zandi believes even an aggressive easing campaign would do little to offset the drag from policy-driven constraints on trade and labor supply.
For wealth advisors and RIAs, the message is clear: macro conditions are shifting, and portfolio positioning may need to adjust accordingly. Defensive posturing—especially in client allocations to cyclicals, industrials, and consumer discretionary sectors—could be warranted if recession risks continue to build. Advisors should also remain attentive to potential volatility in fixed income markets, where expectations of Fed action may already be priced in.
Zandi’s outlook underscores the importance of broader macro awareness beyond the Fed's playbook. As fiscal and immigration policies play a more prominent role in shaping economic outcomes, advisors must help clients anticipate how non-monetary factors could drive market volatility—and potentially impact asset allocation, risk management, and long-term financial planning.
