Emily Mandel, a senior economist for Moody’s Analytics, opened her presentation to Rhode Island state budget crunchers Tuesday with a caveat:
“You will probably be very tired of hearing the word ‘tariff’ by the end of this.”
Mandel’s comments came during the Rhode Island’s biannual Revenue and Caseload Estimating Conference at the Rhode Island State House.
The twice-a-year conference updating state revenue and spending forecasts aims to help lawmakers shape the state’s fiscal 2026 budget, which will take effect July 1. But Rhode Island’s financial future looks fuzzier than ever as question marks hang over federal funding to state governments and the fallout from the international trade war.
“Recession risks remain very high, and it’s evolving day by day,” Mandel said. “It will feel somewhat recession-adjacent.”
The average tariff rate of 21%, based on the existing 145% reciprocal tariffs with China and 10% tariff on goods from all other countries, is the highest the United States has seen since 1909.
“It’s not unprecedented, but it’s unprecedented over the last century,” Mandel said.
The country, and by extension Rhode Island, will see job growth and wages stagnate as consumer and business costs surge as tariff consequences take hold this summer. Assuming Trump backs off the tariff policies — still a major if — economic recovery is expected by 2027, according to Moody’s latest forecast.
Meanwhile, cuts to federal funding, including for Medicaid, threaten to devastate Rhode Island, which relies on an outsized share of federal funding in its spending relative to other states, according to analysis from Pew Charitable Trusts.
And, preserving the state’s declining population will become even more challenging as residents flee for less destinations in the South and mid-Atlantic, as well as cheaper New England states like Maine and New Hampshire.
Moody’s analysts did not name specific income tax policies, such as a millionaire’s tax, as an influence on out-of-state migration. However, they noted that neighboring Massachusetts, which began an extra 4% tax on income over $1 million in 2023, has lost some residents to Rhode Island in recent years.
Legislation introduced in both chambers of the Rhode Island State House calls for a 3% surtax on the top 1% of state earners, setting off the perennial debate over what could be a new state revenue source, or a deterrent to wealthy residents.
A new report published Monday by The Institute for Policy Studies, a progressive D.C. think tank, showed the amount of top earners who live in Massachusetts, as well as their collective wealth, has increased since voters passed the “Fair Share Amendment” in 2022.
Yet the greater Boston metropolitan area has also seen wage growth slow over the last year far more rapidly than the national average, or in the Providence area, according to federal labor data. Kumael Bilgrami, associate economist with Moody’s, blamed Boston’s weak job growth performance on its high cost of living, including housing.
Rhode Island, too, is facing a critical housing shortage that has driven up costs for buyers and renters. The housing crisis is not likely to ease anytime soon; tariffs have sent building material costs skyrocketing, suppressing demand for residential permits, while stricter federal immigration policies make it harder for the construction industry to keep and retain its foreign-born workforce, Bilgrami said.
Yet despite its reputation as a “first in, last out” state when it comes to economic recessions and downturns, Rhode Island has a few advantages over the rest of the country.
Chief among them is the state’s labor market, which has continued to enjoy strong employment growth relative to national and regional averages. The 515,600 jobs recorded in Rhode Island in March 2025 is the highest on record, according to Rhode Island Department of Labor and Training data. While the unemployment rate has ticked up to 4.8% as of March, and is expected to hit 5% by the end of 2025, Rhode Island continues to outperform the country and neighboring states, Massachusetts and Connecticut.
Another advantage for the state’s job market is its diversity of industries, which offers some “insulation” from the consequences of tariffs, Bilgrami said.
Rhode Island boasts an outsized share of finance, education and health care jobs relative to its total labor market, which will be shielded from tariff policies more than other industries like manufacturing.
“We think health care is going to remain relatively stable,” Mandel said.
Job growth forecast for Rhode Island through fiscal 2030 remains relatively unchanged from the last Revenue Estimating Conference in November. Moody’s has revised its projections for state employment upwards slightly since November.
Also consistent with November forecasts are the state’s “housing starts,” or increases in its housing supply, which remain low through the end of the decade, but not much worse now than six months previously.
The forecast does not account for slashing up to $880 billion in federal Medicaid spending nationwide, which would have dramatic consequences in Rhode Island, where federal funds supply more than half of the state’s annual Medicaid budget. The updated financial projections also don’t consider other federal funding cuts beyond the firing of 400,000 federal workers, most of whom are not based out of Rhode Island.
The May Revenue and Caseload Estimating Conference continues through May 9, when budget crunchers will update the amount of budget surplus, or deficit, expected heading into fiscal 2026, and beyond.
This story was originally published by the Rhode Island Current.
