WTI crude oil prices (CL=F) are up about 7 percent over the last month, raising concerns that they could lead to higher inflation. That is exactly what the Federal Reserve doesn't want to see as it fights bring inflation down. It is "potentially problematic" Moody’s Analytics Chief Economist Mark Zandi tells Yahoo Finance Live. "Everything is consistent with a soft landing, but you throw in the mix higher oil prices, if they keep going higher and stay higher, that could be a problem," Zandi says.

Zandi says a UAW strike against the Big Three automakers (F, STLA, GM) would have to drag on for a "long, long time" of time to make a significant impact on the economy. Of the list of things to worry about, Zandi says oil prices are at the top and a looming government shutdown is probably second. On a shutdown, Zandi says it's "more than likely" but that the political pressure is going to "intensify pretty quickly."

Video Transcript

SEANA SMITH: Inflation has been showing signs of cooling off, but it may be short-lived. Energy prices spiking in recent weeks with crude now trading at the highest level that we've seen in nearly a year, just below 90 bucks a barrel.

We've already heard from airlines warning of higher fuel prices. So the question now is whether this could affect the narrative that the economy is definitely heading for a soft landing. Let's talk about that and more with Mark Zandi, Moody's Analytics Chief Economist. Mark, it's good to see you. Thanks for joining us.

MARK ZANDI: Thanks for having me.

SEANA SMITH: So here we are with crude prices rising steadily just shy of 90 bucks a barrel. When we think about this in context to the Fed's fight against inflation, how problematic is this potentially?

MARK ZANDI: It's potentially problematic. I mean, the economy is performing well, growth is slowing, inflation is moderating, everything is consistent with a soft landing. But you throw in the mix higher oil prices, if they keep going higher and stay higher, that could be a problem.

There's nothing more deleterious to the economy than higher oil, gasoline prices that slows growth. It sucks purchasing power of consumers. And it adds to inflation expectations. It undermines consumer confidence. There's nothing worse than higher oil prices.

So hopefully, we don't see oil prices go much above $90 a barrel for any length of time because that could be problematic.

AKIKO FUJITA: No question, oil prices, one of many factors the Fed is watching. We heard from the Boston Fed President Susan Collins this morning talking specifically about the patience that's needed right now that the Fed needs to keep its optionality still potential for an additional rate hike. As we talk about what this landing will look like, I mean, where are we in that landing? Forget soft and hard. Where are we in that process right now?

MARK ZANDI: Well, I think we're pretty far along. It's feeling pretty good right. I mean, we're seeing resilient job growth, but it is slowing to script. The Reserve is working hard to get the job growth down to something that's more consistent with the growth in the labor force, allow the labor market to ease up a little bit. And that's happening.

Now hiring rates are down. The number of unfilled positions still high, but that's come in. Quit rates are down compared to where they were a year ago. Layoffs have picked up a little bit, but they're still low. So by that standard, it feels pretty good. The soft landing seems like is on track.

And, of course, we just talked about inflation, you know, barring higher oil and gasoline prices, I think underlying inflation will continue to moderate and consistent with the soft landing scenario.

I don't think we can declare victory, though. I mean, I don't think we can say we've soft landed until it's clearer that inflation is back to the Fed's target and the Fed is actually beginning to cut interest rates. That feels like that could be a while, probably this time next year.

So we're all-- the trend lines look good. Everything feels like it's on track, but it's still a ways to go here.

SEANA SMITH: Mark, do you still think that 2% inflation target, does that still make sense? Is that still appropriate?

MARK ZANDI: Great question. I mean, I think they need to strive for 2%. I mean, that they have to keep inflation expectations tethered because by so doing, they make it easier for us to actually get inflation down. So I think the Reserve needs to continue to state and focus on that 2% target.

But, you know, Seana, once you were in the kind of below 3 in the twos, I think they can become much more relaxed about getting it down to that 2% target quickly. Because at the end of the day, if you're going to pick an inflation target today given everything you know about the economy and the underlying growth rates, you probably would pick a target inflation rate that's probably closer to three than two.

So once we get into the twos, I think the Federal Reserve becomes much more relaxed about getting it actually down to two. But in the meantime, they've got to stick to that message. They've got to keep inflation expectations tethered.

AKIKO FUJITA: When you look at where things could be going. You've got this report out of Bloomberg talking specifically about the Fed looking to potentially boost growth projections. You look at where the Atlanta Fed is potentially expanding to 5.6% when you look at growth on an annualized basis. I guess, number one is that sustainable? If that's what we're looking at. And what does this ultimately mean about where the Fed is headed then?

MARK ZANDI: Yeah. I don't think the economy is growing 5.6%. No, I mean, it had a pretty good July. And I think that's what's reflected in these so-called tracking estimates that are based on all the monthly data that is available at this point in time.

But my sense is that once we get the August and September data, we'll see an economy that's still growing somewhere around 2%-ish, kind of close to the economy's potential. And I think that's roughly where the economy is.

But here's some good news in that regard in terms of growth and inflation. It does feel like the supply side of the economy is stronger than we thought. If you look at labor force growth, for example, the supply of labor that's been extraordinarily strong. Labor force participation picked up in August. And the labor force expanded by over 3 million in the past year. That's pretty darn good.

And then the other thing that's happening is productivity growth seems to be kicking back into gear. It was quite depressed back a year or two ago. But it feels like it's starting to gets some life back. So you get more labor supply. You get some more labor productivity growth. That allows the economy to grow a bit more quickly without generating inflationary pressures.

So you know, I think it still feels like we're in 2% economy. And that-- I think that's sustainable.

SEANA SMITH: Mark, do you think the strikes at all could potentially change the dynamic that we have? Currently right now, at least over the last couple of months, is slowing growth here within the labor market. But we still have the two unions on strike in Hollywood. We have the threat of the UAW strike looming. I guess, what do you see-- how do you see that impacting the labor market here over the next several months?

MARK ZANDI: Well, you know, the strike would have to drag on for an extended period, a long period of time, more than a few days, more than a few weeks, probably more like a few months, for it really to add up and have a very large impact. And I'm speaking, most specifically about the UAW strike. That's probably the most serious threat to the broader economy.

But it's small in the grand scheme of things. So it'd have to go drag on for a long, long time. I mean, if you're kind of scouring the planet for things to worry about, oil prices are number one. I'd say second on the list is probably the potential for a government shutdown. The UAW strike, the labor market actions, they're on the list but kind of towards the bottom of the list.

SEANA SMITH: Mark, how likely do you think a government shutdown will be or is?

MARK ZANDI: Well, I think it's more than likely. You know, I'm hopeful that it will only last a few days, no more than a couple three weeks. I mean, I think the political pressure for Congress to get it together and for them to sign on the dotted line to fund the government are going to intensify pretty quickly. As soon as federal government employees don't get their paycheck, I think there's going to be, you know, a lot of political pressure to get it done.

So I think the pretty good chance we'll see a few days of shutdown, maybe a couple of weeks. But I'm hopeful it doesn't extend beyond that. But, you know, that could be-- that lasts for very long, that could add up. So just a rule of thumb, for every week the government shuts down, that shaves 1/10 of 1% off of annualized GDP growth in the quarter. So if the government shut down on August-- excuse me, October 1 and didn't reopen until January 1 of next year, that would shave 1.2 percentage points off of fourth quarter growth.

And, you know, in an economy that's growing, too, that's a lot of growth. So we don't want to see that. I don't think we will, but that gives you context.

SEANA SMITH: Hopefully, we don't. All right. Mark, always great to get your perspective. Mark Zandi, Moody's chief economist, thanks.

MARK ZANDI: Thank you.