Why Recession Odds Keep Growing Even After Iran Ceasefire Deal

Markets immediately rallied the moment a ceasefire deal had been reached in the Middle East. Oil pulled back. Stocks popped. Bitcoin bounced.

But underneath the relief, the bigger story may not have changed at all.

Even as tensions appear to cool, recession odds are still rising — and according to Delphi Digital strategist Scott Freeman, the market may be misunderstanding how recessions actually begin in the first place.

Freeman’s framework is simple and based on how recessions have historically started: “Fragile conditions, plus a trigger, equal recession,” he explained in a new Coinage interview. And right now, he argues, both sides of that equation are already in place.

“Energy shocks have… come before every recession since 1990,” Freeman said. “And our leading indicators… are starting to roll over.”

That combination — weakening underlying conditions paired with a geopolitical shock — is why he believes recession risk has quietly moved beyond the range of typical economist hedging. “I think there’s greater than a 50% chance at this point,” he said. “I would say it is the base case outcome.”

Freeman isn't alone. Moody’s chief economist Mark Zandi recently told Axios he's been experimenting with a new recession indicator as well. It's what he calls a “Vicious Cycle Index” — designed to capture a growing blind spot in the labor market. While the unemployment rate has only ticked up modestly to around 4.3%, deeper measures tell a different story.

Labor force participation has been falling more sharply, suggesting that workers aren’t finding jobs — they’re simply giving up looking. As Zandi put it, the unemployment rate may be “understating slack in the labor market,” with discouraged workers quietly dropping out.

That dynamic matters because it feeds directly into the kind of feedback loop Freeman is warning about: weaker job prospects lead to less spending, which slows the economy further, reinforcing the downturn.

In other words, the fragility may already be there — it’s just not showing up in the headline numbers.

That helps explain why recession probabilities remain stubbornly high even as markets react positively to geopolitical headlines. Moody’s own model still puts recession odds around 48%, roughly in line with Freeman’s more bearish view.

Considering oil prices remain elevated as the market continues to gauge whether the latest ceasefire will hold, inflationary pressures will continue to mount. Freeman is skeptical that tensions will fully resolve or that energy markets will normalize quickly.

“I’d be surprised if this actually gets resolved,” he said, noting that even if prices fall in the short term, supply disruptions and geopolitical incentives suggest oil could stay elevated for longer. And historically, that’s been enough.

“If you have these higher energy prices, it’s going to have an impact on growth,” he said. “And asset markets just have not been reflective of that.”

That’s what makes the current moment so tricky. On the surface, the economy still looks stable. Consumer spending has held up. Investment — particularly around AI infrastructure — remains strong.

But beneath that, multiple signals are flashing yellow at once: negative fiscal impulse, tightening liquidity, rising real yields, and now a potential energy shock layered on top. Individually, none of those guarantee a recession. Together, they can start to look like a setup — and it's one that reminds Freeman of the market reaction to the Fed's emergency 50-basis point cut during the COVID lockdown.

The stock market initially popped 6%, but eventually priced in what was about to happen.

"I've heard this quip before, like, 'there's no avoiding feeling like an idiot if a recession happens,'" Freeman said. "Your only choice is feeling like an idiot before markets move or after markets move, and I think I kind of took this opportunity to maybe feel like an idiot and like, we'll see how it plays out if I'm wrong in the long run."

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