David Kelly, chief global strategist at JP Morgan Asset Management, is predicting a significant cooldown in the US economy, with both GDP growth and inflation expected to fall below 2% by the fourth quarter of 2025. This forecast for US economic growth stands in stark contrast to many Wall Street banks that are betting on a prolonged period of robust expansion and elevated inflation in the months and years ahead.
In an interview with Business Insider this week, Kelly outlined his reasoning behind the more conservative outlook. Despite the economy growing 4.3% in the third quarter of last year and inflation reaching 2.7% in December, he believes a substantial shift is underway that will dampen economic momentum.
Immigration Decline Driving Economic Slowdown
The primary factor behind Kelly’s cooler economic forecast is the sharp decline in immigration numbers. According to the strategist, falling immigration will eventually constrain both the labor pool and consumer demand, creating headwinds for US economic growth. He pointed to January Census Bureau data that showed what the agency described as a “historic decline in net international migration.”
Kelly emphasized that current immigration estimates suggest annual immigration to the United States has dropped to just 321,000 people. If these figures are accurate, the working-age population between 18 and 64 is declining by 20,000 people per month, according to his analysis.
Additionally, Kelly noted that temporary stimulus measures will fade as the year progresses. “We’re getting stimulus right now from income tax refunds, we may get some stimulus from tariff rebate checks, but all that’s gonna fade in the fourth quarter of this year,” he said, according to Business Insider.
Economic Growth Faces Long-Term Constraints
The JP Morgan strategist believes the economy cannot sustain growth rates above approximately 1.5% annually without changes to immigration numbers. This structural limitation could pave the way for additional interest rate cuts in 2027 as the economy enters what he described as a “soggier” period.
However, Kelly’s outlook has immediate implications for investment strategy. He is steering away from market sectors that could be particularly sensitive to population declines, including consumer staples and housing. Kelly specifically cautioned against consumer staples investments, noting that recent poor results from a large consumer staples company were attributed to declining consumer numbers rather than reduced consumer spending power.
International Stocks Offer Better Value
Meanwhile, Kelly is recommending investors increase their exposure to international stocks as a hedge against slower US economic growth. Despite outperforming in the past year, international stocks remain relatively cheap compared to US equities, he noted. US investors also remain historically under-allocated to international markets due to the extended outperformance of domestic stocks in recent decades.
In contrast to the prevailing sentiment, Kelly believes the widespread aversion to international investments presents an opportunity. “Ask yourself one question: Where is there an embedded prejudice within markets?” he said, drawing parallels to similar opportunities that emerged after the dot-com bubble burst and following the 2009 financial crisis.
Kelly advised that investors don’t necessarily need to focus on specific regions or countries but should simply add international exposure. Examples of funds offering this exposure include the Vanguard FTSE All-World ex-US ETF and the iShares Core MSCI Total International Stock ETF, according to the report.
Beyond equities, the strategist expressed a preference for municipal bonds over corporate credit due to relative tax advantages. In alternative assets, Kelly favors real estate, infrastructure, and global transportation themes, which historically show lower correlation to stock market movements.
The full impact of immigration trends on US economic growth will become clearer in the coming quarters, though authorities have not confirmed whether current migration patterns will persist or reverse. Economic data releases throughout 2025 will provide further evidence for or against Kelly’s forecast of below-2% growth and inflation.
