J.P. Morgan’s Kelly: Optimism on U.S. Economy in Q2

Peripheral European countries need assistance; commodities pressuring developing nations

David Kelly, market strategist and managing director  at J.P. Morgan Asset Management, spoke Tuesday about the outlook for Q2 in a webcast titled, "Q2 2011 Economic and Market Outlook: Out of Recession but Out of Sync."

David Kelly of JP MorganWhile Kelly (left) expressed optimism regarding the U.S. economy, he also pointed out that if the healthier European countries within the euro zone fail to find a way to assist peripheral nations, those nations will be hurt. He also said that rising commodity prices are exerting more pressure on developing countries than on developed countries.

Among the subjects he discussed were the macroeconomic environment, conditions in the U.S., monetary policy issues, and the positioning of investor portfolios in a low-but-rising inflation atmosphere. Optimistic about the growth of the U.S. economy, he pointed to four straight quarters of growth in inventories after eight quarters in which they shrank.

Kelly warned of slow expansion in the housing market, but pointed to some growth in capital spending and in vehicle sales, although the latter, he added, was barely at replacement rate.

On the subject of jobs, Kelly opined that, although the country is “replacing a good chunk of jobs lost," it will take another three years to regain the rest of the lost territory.

The pace of improvement in the economy, he said, is slowing, but it’s "not something to be alarmed about." Inflation, too, he said is on the rise, but not at a level to cause concern.

Tightening monetary policy elsewhere in the world signals tightening to come in the U.S. as well; “the Federal Reserve will not be super easy for much longer,” with an end to QE2 at the end of June and most likely a “case for a first rate hike before the end of the year.”

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