- The economy will be on the brink of a downturn for the next two years, according to JPMorgan’s David Kelly.
- Kelly said high interest rates were slamming economic activity, and growth was more sluggish than it appeared.
- But he predicted inflation will return to 2% by 2024.
The US economy is much weaker than the data suggest and will be on the verge of a downturn for years, according to JPMorgan Asset Management chief strategist David Kelly.
“What I see in this economy though is a lot of drag, which is going to keep this economy very slow and on the edge of recession — if it doesn’t fall into a recession — over the next two years,” Kelly said in an interview with Bloomberg TV on Friday.
That’s contrary to what other market commentators have said, citing strong economic data. Despite fears of slowing activity, gross domestic product grew 2.9% in the fourth quarter, and US payrolls swelled by a stunning 517,000 jobs in January, blowing past economists’ expectations.
But Kelly said he was “suspicious” those reports were distorted, and noted there were several kinks in the data that suggest the economy is weaker than it appears.
For example, January employment actually fell by 2.5 million workers last month when the data isn’t seasonally adjusted, he said.
And fourth-quarter GDP growth could be due to a big run-up in inventory, which could make the economy look as if it’s expanding faster than it actually is. He estimated actual economic growth is below 1%, less than half of what the GDP data implied.
That’s largely due to the impact of the Fed’s rate hikes, with central bankers having raised interest rates 450 basis points in the last year to tackle soaring inflation. Rates are now at their highest level since 2007, which could easily push the US into a recession, experts warn.
Markets were spooked by last week’s jobs report, which suggested that the Fed could lift rates higher to achieve their goals. But Kelly predicted the Fed will soon begin cutting interest rates due to growing weakness in the economy, with inflation returning to 2% inflation by 2024.
“We’re on this huge rollercoaster and the thing about rollercoasters is that you get off where you got on, and I think that’s where’ we’re going to end up,” he added. “This economy is not an inflation-prone economy, and if you just wait for this thing to work its way through, I think we’ll be back in a slow-growth, low-inflation environment.”
That could spell good news for stocks, which flourished amid the low-interest rates 0f last decade, and were hammered in 2022 by 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.