The headlines don't seem to agree on where the economy is heading, and business leaders, economists, and most importantly, consumers don't seem to agree. Stock markets are booming as millions of wage earners strain under high prices. Employment statistics can be strong or weak from month to month. And with the policy environment changing weekly, planning can feel almost futile.
Emily Mandel, senior economist and associate director at Moody's Analytics, came to the CFO Leadership Council's Spring 2026 Leadership Conference in Boston to read up on what's happening, what could happen, and what CFOs can do about it.
Her conclusion is that while the baseline is not a recession, the risks are real and asymmetric, and it's worth stress testing now. This is the economic situation she presented.
The Strait of Hormuz will continue to be the number one watch item. The conflict, which cuts off one of the world's most important oil shipping routes, poses the biggest near-term risk to the U.S. economy. Shipping traffic through the strait has fallen to almost zero, and unlike financial shocks, oil supply disruptions will not recover quickly. Countries have depleted their stockpiles to prepare for soaring prices, but that buffer is now all but gone.
Mundell's baseline assumes the Strait will reopen by roughly the end of June. If that happens, oil prices (currently near $100 a barrel) will gradually normalize, but not back to previous levels. Otherwise, calculations quickly become difficult.
“If we keep the Straits closed until Labor Day, we have a very bleak scenario: a recession. The United States is in a relatively advantageous position and produces a lot of oil, so if we go into a recession, the rest of the world will go into a recession as well.”
Tariffs are not a one-time blow, but remain a persistent drag. One year after Liberation Day, the effective tariff rate increased from about 2% to about 10%. The Supreme Court's recent ruling that some of the tariffs were illegal did not change much, and the administration moved quickly to implement similar taxes under another authority.
Mandel's reading: Tariff rates will remain largely unchanged. The price pass-through took longer than expected, but it happens. For CFOs who rely on imported materials, this is an ongoing cost pressure, not a temporary one.
Labor supply is slowly tightening due to immigration restrictions. Both legal and illegal immigration declined sharply, reducing the available labor force. So far, the economic impact has been contained, largely because employment has slowed enough that the labor crunch is not causing significant wage pressures.
But Mandel warned that this was a slow-building risk. In the coming years, industries that rely heavily on migrant workers, such as agriculture, construction and manufacturing, will feel even more strained.
AI is a real tailwind, but it's not yet a productivity story. The AI boom is contributing to GDP growth primarily through capital investments such as building data centers, building infrastructure, and purchasing equipment. In industries where AI adoption is progressing, business formation is also progressing.
However, the productivity improvements that the stock market is pricing in have not yet been reflected in economic indicators. “There are expectations, and certainly they are factored into the stock valuation, but the contribution so far has been primarily on the investment side.”
Consumers are holding on, but cracks are starting to show. Private consumption remains positive but is slowing, and its composition is becoming increasingly concerning. Most of the growth in spending came from households in the top quintile, which saw the largest increases in wealth.
The bottom 80 percent are dealing with rising gas prices, rising inflation, and stagnant real wages, and the trend is beginning to show. Credit delinquencies are increasing across the mortgage, auto loan, and student loan categories.
Tax rebates provided a short-term cushion against rising gas prices, but that cushion is now nearly exhausted. “If these high-income households cut back on spending a little bit, we wouldn't get the same growth, because right now the lower end of the distribution doesn't have as much savings.”
Rate cuts aren't coming. There is also a possibility of interest rate hikes. The Fed is watching both mandates go wrong at the same time, with the unemployment rate creeping toward 4.3% and inflation accelerating again.
Moody's criteria has kept interest rates constant throughout this cycle, on the theory that the labor market is not strong enough to justify a rate hike and the Fed will treat the energy shock as temporary. However, the possibility of a rate hike is increasing. For CFOs approaching variable rate debt or refinancing decisions, fixed rates to higher rates should be the premise of their plans.
What should CFOs do about all this? When asked directly how finance leaders should navigate this environment with their teams and employees, Mandel emphasized transparency and scenario planning rather than false confidence. The headwinds are clear for everyone to see, and employees are reading the same headlines as CFOs.
Her suggestion is to clearly lay out your base case, clearly name your two or three biggest concerns, and outline what your business would look like under each scenario. In such an uncertain environment, honesty about a variety of outcomes is more reliable and useful than single-point predictions.
“Be honest about the unknown. There are a lot of unknowns in the current environment,” she said. “It's not a secret to people.”
