Podcast Summary: Notes on the Week Ahead

Host: Dr. David Kelly, Chief Global Strategist, J.P. Morgan Asset Management
Episode: An Updated Outlook for the U.S. Economy
Date: March 9, 2026

Overview

In this episode, Dr. David Kelly revisits and updates his previous U.S. economic outlook in light of significant recent developments: a surge of new economic data, the Supreme Court decision on tariffs, and the onset of war in the Middle East. Kelly contrasts forecasts from three weeks ago with today’s more complex reality, highlighting shifting expectations on growth, employment, inflation, profits, and the Federal Reserve’s trajectory.

Key Discussion Points & Insights

1. Baseline Forecast Update (00:04 - 04:00)

• Kelly summarizes his outlook from three weeks ago, with real GDP growth expected at 2% year-over-year for Q4 2026.
• Key forecast details:
  • Q1 growth of 1% due to bad weather.
  • Middle two quarters expected at 3% as spending is boosted by income tax refunds and tariff rebates.
  • Growth slowing to 1% in Q4.
  • Supports: AI-driven capital spending; wealth effects from stock market gains.
  • Drags: Weakness in construction and government spending, labor supply constraints.
  • S&P 500 earnings were anticipated to remain strong but unlikely to sustain double-digit growth as nominal GDP slows.
  • Inflation expected to peak over 3% in summer, falling to about 2% by year-end.
  • Fed was anticipated to cut rates twice in 2026.

“Three weeks ago we expected real GDP growth of 2% year over year by the fourth quarter 2026... We also expected growth to slow to 1.5% in 2027, partly reflecting a lack of labor supply.” — Dr. David Kelly (01:28)

2. Economic Data: Surprises and Trends (04:01 - 07:30)

• Q4 GDP underperformed at 1.4% annualized.
• Vehicle sales and retail sales showed weakness, with hopes for March improvement due to better weather.
• Income tax refunds were below expectations until recent policy changes; a surge is anticipated soon.
• Unemployment rate ticked up from 4.32% to 4.44% (Feb 2026).
  • Payrolls fell by 92,000 in February; five declines in the past nine months.
  • Decline in foreign-born workers is a significant drag on employment.

"The February jobs report... was brutal, showing a payroll job loss of 92,000, the fifth month of declines in the last nine." — Dr. David Kelly (05:52)

• Positive note: Productivity growth remains strong (+2.2% output per hour in 2025).

3. Supreme Court & Tariff Developments (07:31 - 10:15)

• Supreme Court overturned the administration’s IEIPA tariffs on February 20.
• The President responded with a new broad-based 10% tariff, threatening an increase to 15%.
• Treasury expects restoration of previous tariff levels within five months, but Kelly is skeptical.
• Effective average tariff rate in forecast reduced from 11% to 9.1%.

4. The War in the Middle East: Economic Repercussions (10:16 - 13:00)

• Outbreak of U.S. and Israel vs. Iran war (Feb 28); Strait of Hormuz traffic nearly halts.
• Oil prices spike: April WTI futures hit $91.27/barrel; gasoline rises to $3.45/gallon (+47 cents/week).
• Futures markets predict a quick resolution: June WTI at $82.56; Dec 2026 contracts at $69.07.
• Gasoline prices usually rise seasonally through June but may stay elevated until fall in 2026.

5. Updated Economic Outlook: Revisions and Risks (13:01 - 16:30)

• Growth: 2026 Q4 forecast cut to 1.8% y/y due to war, higher energy prices, tariff uncertainty, and weak jobs market.
• Employment: Unemployment now projected to fall only slightly to 4.2% by year-end.
• Profits: Remain on track for high single-digit growth—productivity gains and subdued wage demands due to “worker gloom.”
• Inflation: CPI could peak at 3.5% in June, fall to 1.9% by December.
• Fed Policy: Federal Reserve expected to stay on hold in March, with two rate cuts likely in 2026, a few more in 2027.

"Our expectations for fourth quarter year over year economic growth has fallen to 1.8%... CPI inflation could now peak at 3.5% in June of this year, up from a forecast... of a peak at just over 3%.” — Dr. David Kelly (14:25, 15:24)

6. Investment Implications and Market Dynamics (16:31 - End)

• Both U.S. and international markets have experienced declines, the dollar has strengthened, and Treasury yields have risen.
• If the Middle East conflict is brief, global equity markets should rebound, favoring overseas equities as the dollar weakens.
• Higher probability of rare, unexpected (“fat-tailed”) events; investors should diversify to reduce risk concentration.

"There continues to be an overriding need for investors to diversify more broadly.” — Dr. David Kelly (18:00)

Notable Quotes & Timestamps

• “So much has happened since then...it makes sense to go through the exercise again. Or as the marketers of hair products might say, rinse and repeat.” (00:21)
• “Moreover, with new population controls, the household survey shows a similar trend with the unemployment rate rising from 4.32% in January to 4.44% in February.” (06:21)
• “We expect the US to declare victory fairly quickly, and the administration will likely focus on reopening the Strait.” (11:51)
• “If it's relatively quick, global equity markets should resume an upward trend...the best returns may still be found in overseas equity markets.” (17:23)
• “...the outbreak of the war has increased uncertainty with an increased risk of a fat tailed or improbable event...investors to diversify more broadly.” (17:53)

Important Segments & Timestamps

• Baseline forecast review and initial expectations: 00:04 – 04:00
• Latest economic data and jobs market analysis: 04:01 – 07:30
• Tariffs and Supreme Court decision: 07:31 – 10:15
• Middle East war and oil market shock: 10:16 – 13:00
• Updated forecast and impact summary: 13:01 – 16:30
• Investment implications and risk assessment: 16:31 – End

Tone and Style

Dr. Kelly delivers the episode in a clear, analytical, and occasionally lighthearted tone—mixing deep economic insight with approachable analogies (“rinse and repeat”) and practical investor advice. He maintains a focus on both macroeconomic details and real-world implications for markets and portfolios.

For listeners wanting actionable takeaways:

• Expect slightly weaker U.S. growth, persistent productivity gains, brief inflation spikes, and lower but not recessionary employment gains.
• Tariff and wartime uncertainties elevate short-term risks but should not fundamentally alter long-term trends if resolved quickly.
• Diversification remains key as geopolitics, rather than economic data alone, now drives major market risks.