The U.S. economic recovery remains on shaky ground, well over a year after the recession officially ended, and two top strategists said on Monday they fear the economy could suffer a new blow next year.

The big concern is that growth remains tethered to government support and is still not sufficient to reduce an unemployment rate that last month surprised financial markets with a rise to 9.8 percent.

Speakers at the Reuters 2011 Investment Outlook Summit in New York on Monday were cautious about the economy's prospects. John Taylor, chief executive of FX Concepts, which operates the world's largest currency hedge fund, gave the bleakest assessment.

I would argue that by the middle of next year, we will be in a recession, said Taylor, noting that the government remains the biggest creator of growth since the recession ended in June 2009.

Gail Fosler, president of the GailFosler Group LLC, a strategic advisory service, also warned of challenges at the Reuters Investment Summit.

We are still in a time where there seems to be more downside risks. There's no momentum in the economy, it seems to be drifting with the current, she said.

The most recent remarks by Federal Reserve Chairman Ben Bernanke about the U.S. central bank's plans to continue to buy up U.S. government bonds to shore up the economy have highlighted investors' worries.

Bernanke, in an interview aired by CBS on its 60 Minutes program on Sunday evening, said the Fed could end up buying more than the $600 billion in U.S. government bonds it has committed to purchase if the economy fails to respond or unemployment stays too high.

Already, the Fed's continued use of unconventional monetary policies -- which come on top of its keeping interest rates near zero percent since December 2007 -- have not only driven investors to seek better returns in higher-yielding emerging markets, but have also drawn widespread criticism from politicians, economists, major institutional investors and finance officials from Germany, Brazil and China.

Taylor has been skeptical for some time whether the Fed's actions can truly support the economy.

Bernanke on Sunday defended the Fed's programs, saying that had the U.S. central bank not intervened the way it has, the unemployment rate would be 25 percent.

He said it would take four to five years for the country's unemployment rate to come down to what he called more normal levels of around 5 percent to 6 percent.


Fosler was cautious about the outlook for 2011, but held out hope that economic growth would become more robust the following year.

Hopefully by mid-2012 the economy will begin to look better. The unemployment rate will be down. Things will not be in extremis, she said.

U.S. economic growth in 2011 will likely be about 2.5 percent, she said, short of levels typically associated with robust job growth.

Fosler, however, said she was quite optimistic about some sectors, including a potential resurgence in U.S. manufacturing over several years. Housing, a key component of the recent recession, is now more stable, she added.

Still, at a time Congress is embroiled in debate over whether to extend benefits to the long-term unemployed, the high jobless rate will likely remain a reality for some time.

If we get to below 7 percent by the end of 2013, I would be surprised, she said.

Some top investors at the Reuters Summit were more optimistic.

Jim O'Neill, chairman of Goldman Sachs Asset Management, noted that Goldman recently raised its outlook for the U.S. economy.

On the U.S., we made the biggest forecast change in five years and we are slightly more optimistic than the consensus on U.S., O'Neill said.

Hedge fund manager Shawn Kravetz, who specializes in consumer and retail-related stocks, said short-term conditions in the retailing industry are picking up and are likely to result in decent holiday sales. Longer term, he sees prospects more uncertain.

2011 will be a real litmus test, said Kravetz, president of Boston-based Esplanade Capital LLC.

At a time wage growth is almost stagnant -- average hourly earnings in November were up 1.6 percent year on year -- prosperous Americans alone can not prop up the economy.

I don't think it will be the high-end consumer that will save us all. It will have to be the masses -- that's where the money is spent and the jobs are created, he said.

(Reporting by Ros Krasny; Editing by Leslie Adler)