Economy Likely to Grow 4% This Year: Fixed Income Exec

Despite the unrest in the Middle East and the rising cost of oil, the U.S. economy is likely to see 3.5- to- 4 percent growth this year, Stephen Walsh, CIO of Western Asset Management, told CNBC on Tuesday.

"We like the durability of the recovery. You know in a lot of ways, away from housing and construction, the U.S. recovery here actually looks pretty decent to us," Walsh said.

Western Asset Management is a fixed-income firm with nearly half a trillion dollars in assets.

Walsh cited a number of factors contributing to the economic momentum, including improved balance sheets for consumers and corporations, as well as strong exports.

"Coporate balance sheets are in great shape. They certainty have the ability to spend money and they're starting to hire. It's been slow—that's certainly one of the missing links in this recovery—but we do think it's gradual and will pick up from here," he added.

Based on the housing prices bottoming out, Walsh has a middle view of the housing market. But added, there are opportinities in the non-agency mortgage sector.

"Our positive view on the non-agency mortgage sector is not based on a really bullish view for housing. It is based on a perception that the prices in that sector are very conservative. They are reflecting conservative expectations, something like probably a 10 percent further decline in home prices from here are already reflective in the prices," he said.

"But to really get negative on that sector, based on where the securities are priced, you have to have a view that would have housing down more than 10 percent," added Walsh.

"It's a deeply distressed market. Out of all the risk asset sectors within fixed-income, its recovered the least since the crisis in '08," he went on to say.

With the latest Fed strategy to give the economy a boost, known as QE2 (quantitative easing), set to end on June 30, Walsh is not focused on what the Fed is doing in terms of the fixed-income market.

"We're not going to base our interest rate view on what happens when the Fed stops. Where are the fundamentals for inflation in the economy that's going to determine where interest rates are—not what the Federal Reserve may be up to," he concluded.

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