Dow Jones

NEW YORK - The risk of a so-called economic "hard landing" has increased in the U.S., although a more moderate slowing in activity still remains most likely, according to strategists at J.P. Morgan Investment Management.

Speaking in an investor conference call Tuesday morning, the investment managers said that they're looking for falling bond yields as a result of the slowing, and a continued strong chance that the Federal Reserve's next policy move will be a cut in interest rates.

The heightened chance of the hard-landing scenario comes on the heels of disappointing third-quarter earnings projections by large U.S. companies, along with the likely bite that high oil prices will have on consumers' willingness to spend.

While the inflationary implications of oil remain uncertain, the J.P. Morgan strategists said higher energy prices will cut into other consumer spending activities, which will in turn lower that sector's overall contribution to overall economic gains.

"Hard landing risks have risen as growth has slowed more than expected," said Christopher Durbin, managing director and head of global asset allocation at J.P. Morgan Investment Management.

Still, he was quick to reiterate his view that a more moderate and palatable moderation of growth is the most likely outcome of the Fed's interest rate hiking campaign.

In this scenario, Durbin said he expects bond yields - which move inversely to prices - in the U.S. to move lower, heartened by continued soft equities performance and the possibility the weaker economy will open the door to an easing in interest rates.

As a result, J.P. Morgan is bolstering its portfolio of U.S. bonds, along with European fixed-income securities, an area in which they expect yields decline, as well.

The Fed and European central banks, due to the more moderate economic growth outlook, may soon be able to lower interest rates, the J.P. Morgan strategists said. They added that any likely easing cycle would be kicked off by a chop in rates from the Bank of England.

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