Moody’s Analytics’ Zandi Warns of Fragile Economic Growth Amid Tariff Impacts and 2026 Market Uncertainty

This analysis is based on Mark Zandi’s (Moody’s Analytics) December 31, 2025, appearance on CNBC’s ‘Squawk on the Street’ [1], where he discussed tariff impacts, fragile economic growth, and the 2026 market outlook. On the same date, major U.S. indices—S&P 500, NASDAQ, and Dow—experienced modest declines (0.25% to 0.34%) [0], with the Energy (-0.55775%) and Consumer Cyclical (-0.55684%) sectors being the worst performers [0]. The Consumer Cyclical sector’s weakness directly aligns with Zandi’s concerns: as a sector sensitive to input cost changes, tariffs drive up prices for retail and consumer goods, pressuring corporate margins and household spending.

Cross-domain correlations emerge between tariff policy, inflation, monetary policy, and sector performance. The effective U.S. tariff rate (~17%) is the highest since 1935 [0], a factor contributing to November 2025 inflation of 2.7%—above the Federal Reserve’s 2% target [0]. This inflation, paired with a projected tariff cost of $3,800 per household in 2025 and an additional $1,400 in 2026 [0], explains the fragile growth outlook despite strong Q3 2025 GDP growth of 4.3% [0]. The Fed’s signal of only one rate cut in 2026 [0] further amplifies uncertainty, as tighter monetary policy may constrain both consumer and business spending, prolonging the fragile economic environment.

: Elevated recession risk (42%, compared to 15% in a healthy economy) [0] tops the list, followed by tariff-induced inflation eroding household purchasing power, slow Fed rate cuts prolonging economic uncertainty, and sector-specific vulnerability in Consumer Cyclical and Energy [0]. These sectors face dual pressures from tariff-related input cost hikes and potential demand slowdowns.
: While limited, targeted policy adjustments (e.g., tariff reductions) could alleviate inflationary pressures and boost consumer spending, potentially benefiting the Consumer Cyclical sector. Investors may also find relative stability in sectors less sensitive to tariffs and inflation, though this requires ongoing monitoring of policy and economic trends.

This synthesis provides objective context without prescriptive investment recommendations. Critical data points include: Q3 2025 GDP growth of 4.3% with a fragile near-term outlook [0]; 42% recession risk [0]; 17% effective U.S. tariff rate (highest since 1935) [0]; $5,200 cumulative projected tariff cost per household (2025-2026) [0]; November 2025 inflation of 2.7% [0]; Fed’s 2026 signal of only one rate cut [0]; and December 31, 2025, market declines with Consumer Cyclical and Energy sectors underperforming [0]. Decision-makers should monitor tariff policy changes, Fed actions, and consumer spending trends to assess evolving economic conditions.