The US economy will be on the verge of a recession in the next two years, says chief strategist at JPMorgan Asset Management

  • According to David Kelly of JPMorgan, the economy will be on the brink of recession in the next two years.
  • Kelly said high interest rates are dragging down economic activity and growth has been more sluggish than it seemed.
  • But he predicted that inflation would return to 2% by 2024.

According to JPMorgan Asset Management chief strategist David Kelly, the US economy is much weaker than the data suggests and will be on the brink of recession for many years.

“What I see in this economy is a lot of resistance that will keep this economy very slow and on the brink of recession – if it doesn’t go into recession – for the next two years,” Kelly said in an interview with Bloomberg TV on Friday. .

This is contrary to what other market commentators are saying, citing strong economic data. Despite fears of a slowdown in activity, gross domestic product rose 2.9% in the fourth quarter and US jobs added a staggering 517,000 jobs in January, beating economists’ expectations.

But Kelly said he was “suspicious” that those reports were misrepresented and noted that there are several inflections in the data that suggest the economy is weaker than it appears.

For example, employment in January actually fell by 2.5 million people last month if the data was not seasonally adjusted, he said.

And GDP growth in the fourth quarter could be fueled by strong inventory growth, which could make the economy look like it’s growing faster than it actually is. He estimates that actual economic growth is less than 1%, less than half of what the GDP data implies.

This is largely due to the impact of the Fed’s rate hike, when central banks raised interest rates by 450 basis points last year to cope with rising inflation. Experts warn that rates are now at their highest level since 2007, which could easily push the US into recession.

Markets were spooked by last week’s jobs report, which suggested the Fed could raise rates to meet its targets. But Kelly predicted that the Fed would soon start cutting interest rates due to the growing weakness of the economy, with inflation returning to 2% inflation by 2024.

“We’re on this huge roller coaster, and the thing about a roller coaster is that you get off where you stand, and I think that’s where we’re going to end up,” he added. “This economy is not subject to inflation, and if you just wait for this thing to work, I think we will return to a slow-growth, low-inflation environment.”

This could mean good news for stocks that have flourished amid low interest rates over the past decade and suffered in 2022 due to the Fed’s aggressive rate hikes. The S&P 500 lost 20% last year, with some Wall Street bankers warning of another 20% crash as the economy flirts with a potential downturn.

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