Recession odds climb on Wall Street as economy shows cracks beneath the surface

Economic Outlook - Federal Reserve Chair Jerome Powell has downplayed the threat of stagflation to the U.S. economy, but his successor may face increased challenges as Wall Street raises recession expectations due to geopolitical risks and inflation concerns [1][5] - Economists have increased their recession risk assessments for the U.S., with Moody's Analytics projecting a 48.6% chance of recession in the next 12 months, while Goldman Sachs estimates it at 30% [3][2] Labor Market Concerns - The U.S. labor market has shown signs of strain, with only 116,000 jobs created in 2025 and a loss of 92,000 jobs in February, leading to concerns about consumer spending [12][10] - The unemployment rate remains steady at 4.4%, but this is attributed to fewer layoffs rather than significant hiring [12] Consumer Sentiment - Consumer sentiment is declining, with a survey indicating that 65% of respondents expect a recession within the next year, an increase of 6 percentage points from the previous month [11] - Spending growth has been supported by rising asset prices, with estimates suggesting that 20% to 25% of spending growth has been driven by the wealth effect from the stock market [17][18] Inflation and Energy Prices - An oil price shock has historically preceded U.S. recessions, with gas prices rising by $1.02 per gallon (35%) over the past month [6] - Economists warn that sustained high oil prices could push the economy into recession if they remain elevated through the second quarter [7] Economic Growth Projections - The U.S. GDP is projected to grow at a 2% pace in the first quarter, following a modest 0.7% increase in the fourth quarter [19] - If global leaders can resolve the ongoing conflict in the Middle East, the economy may avoid the worst-case scenarios, aided by stimulus measures and increased production [20][21]