JPMorgan Asset Management chief global strategist David Kelly joins Julie Hyman and Akiko Fujita at the Future Proof Festival to discuss the state of the US economy as the Federal Reserve is expected to make its first interest rate cut in four years this week.

Kelly calls the current economy "healthy," explaining, "the unemployment rate is at 4.2%, the CPI [Consumer Price Index] inflation rate 2.5%. You add those two numbers together, 6.7 — that is lower than it's been 84% of the time over the last 50 years. So I think the Federal Reserve really shouldn't have too much angst about this," he tells Yahoo Finance.

He argues that the Fed shouldn't have pushed rates as high as they did and should have initiated cuts earlier. However, he explains that if Fed officials cut aggressively from here on out, they runs the risk of undermining investor confidence as it could signal that the economy is worse off than expected.

"It's kinda like lowering a piano down from the fourth floor of a building. You got to do it slowly and carefully because the biggest risk is that you freak people out."

If the Fed sparks recession fears by cutting rates too aggressively, Kelly believes that it could cause a ripple effect that impacts everything from hiring to the housing market. While lower rates will stimulate the economy, he warns, "the first few moves actually hurt the economy, not help it. That's why the Federal Reserve has such a hard time cutting rates and actually having it help the economy because it actually hurts before it helps."

Kelly views the Fed moving too dramatically as the "biggest known risk" for the US at this point in time. He points to pivotal events like September 11 and the COVID-19 pandemic which have contributed to recessions in the past. "I think people are worried about recession, but in the end, you've gotta gimme a reason why consumers stop spending, and I think it takes a lot to make American consumers stop spending."

With the 2024 presidential election on the horizon, Kelly believes that the United States's debt isn't a cause for concern:

"We absolutely need to deal with it, but what we've seen is the world has got a tremendous appetite for US debt. Last year, the Fed, the Treasury Department managed to raise $2.7 trillion of additional debt. And long-term interest rates didn't even go up. And so if they can do that, I think that we can actually handle big deficits for a while."

Instead, Kelly worries about a potential trade war as both Democrats and Republicans have embraced tariffs. "Tariffs are terrible economic policy. They are a magical stagflation elixir. There are very few things that can actually cause the economy to slow and push up inflation at the same time. And tariffs can do that," he warns, noting that the policy could land the US in a recession.