Watch for U.S. recession, zero interest rates in China next year, Citi says ReutersBy By Jamie McGeever | Reuters – 14 hours ago

Watch for U.S. recession, zero interest rates in China next year, Citi says

By Jamie McGeever

LONDON (Reuters) – The outlook for the global economy next year is darkening, with a U.S. recession and China becoming the first major emerging market to slash interest rates to zero both potential scenarios, according to Citi.

As the U.S. economy enters its seventh year of expansion following the 2008-09 crisis, the probability of recession will reach 65 percent, Citi’s rates strategists wrote in their 2016 outlook published late on Tuesday. A rapid flattening of the bond yield curve towards inversion would be an key warning sign.

“The cumulative probability of U.S. recession reaches 65 percent next year,” Citi’s rates strategists wrote in their 2016 outlook published late on Tuesday. “Curve inversion will likely come more quickly than the consensus thinks.”

Normally, short-dated yields such as two-year yields are lower than longer-dated ones like 10-year yields, as investors demand a premium for taking on risk several years into the future. The curve has inverted before each of the last five U.S. recessions since the mid-1970s.

In China, deflationary pressures and downside risks to growth will force Beijing to loosen fiscal policy, let the yuan depreciate and perhaps become the first major emerging market economy to cut interest rates to zero, Citi said.

(Reporting by Jamie McGeever, editing by Larry King)

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    Paul S  •  1 hour 3 minutes ago Report Abuse

    Ok so short-term yields were high just prior to previous recessions? That’s because previous recessions were caused by heavy tightening of the monetary supply, for the most part. We won’t see that this time. Though we are seeing the expectation of that reflected in yield curves. The US money… More

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    Chanan  •  8 hours ago Report Abuse

    Even the blind guys from Wall Street can see it now. when will the FED realize that their QE, Debt out of control and ZIRP has reached its dead end? You cannot create prosperity by just creating debt and money. Never happened. You can see it all in a new book ” A Brief history of Money – how we… More

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    Richard Taylor  •  4 hours ago Report Abuse

    Deflation is already occurring (great for people with cash). The US Federal Govt Debt Bubble will eventually burst. The US economy, as sluggish as it is, is sustaining on Federal Govt deficit spending (similar to the artificial economy created by the CommunityReinvestmentAct).

    The US… More

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    Manfrommombasa  •  11 hours ago Report Abuse

    Another black swan in the mix, one day we will look back and realize what will happen was of course inevitable . Not unlike the housing crash, in hind sight how could it have ended any other way. All it’s going to take is one country to turn it’s nose up at the T bill and publicly acknowledge “we… More

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    Eldon  •  8 hours ago Report Abuse

    I am not a survivalist or a doom-preparer or the like. If the $#!^ truly hits the fan no amount of preparation by anybody that is not “Connected” is going to do much good; you’ll just be the last one to get killed and eaten by the cannibals. That last part is said in jest; so far as you know…. More

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    Dan  •  12 hours ago Report Abuse

    The problem is the American economy is built on sand. The fed transferred almost 6 trillion dollars to wall street over the past 7 years. All of the investors are chasing those free dollars, 10% of which, own 80% of the market, and all of the money flowed to the top. The only thing keeping it… More

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    Steve  •  9 hours ago Report Abuse

    According to The Wall Street Journal: There are now more auto loans than mortgages outstanding. Fewer mortgages are going to those with weak credit, but the opposite is true for auto loans. Over the six months through September, more than $110 billion of auto loans have been originated to borrowers… More

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    Diane  •  11 hours ago Report Abuse

    Things might have gotten a little better over the last few years but anyone who has had to look for a job even today knows that the economy is still in pretty bad shape. Ten years ago it took the average person anywhere from a couple of weeks to a few months to land a new job. Today, it can take… More

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    Cavedweller  •  12 hours ago Report Abuse

    Emerging-market debt could well be the driver of our next recession, a la the Asian Crisis of the late 90’s. If so, it’s likely to be pretty mild in the US, though some of the debt-laden countries could be in for a long rough patch.

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    Earl  •  9 hours ago Report Abuse

    The real life Monopoly game where the banks go broke and can’t pay the $200 for passing go and the players are getting in debt to the point of not catching up and we go to the five and dime store and restock the bank with money but the rich just absorbs it as fast as its put in the game and then… More

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