US Likely To Hit Recession Next Year

The United States has a 65-percent chance of going into recession next year, according to American multinational banking and financial services corporation Citi.

“Curve inversion will likely come more quickly than the consensus thinks,” wrote the Citi team covering G10 rates strategy on Tuesday, December 1.

“Curve inversion” refers to the shape of the U.S. Treasury curve as indicated by sovereign debt yields of various maturities.

“Such yield curves typically slope upwards, a reflection of the inherent riskiness of lending someone money (in this case, the U.S. government) for a longer period of time as well as expectations that policy rates set by central banks will move higher in the future,” explained Bloomberg Business. “Inverted yield curves, however, suggest that market participants believe monetary policy is tight, which will bring about a slowing of the economy and result in monetary stimulus in the form of interest rate cuts from the central bank.

“The latter (inverted) shape has historically preceded U.S. recessions, and it is this one that Citigroup strategists think could come about sooner rather than later.”

Janet Yellen

Janet Yellen

Making a rare comment on economic news, Federal Reserve Chairperson Janet Yellen took exception with the prediction during Thursday testimony before Congress’ Joint Economic Committee.

While making clear that she “cannot put a number on the risk of a recession,” Yellen did go on to directly disagree with the Citi analysis.

“I absolutely wouldn’t see it as anything approaching 65 percent,” the central banker said.

Speaking with CNBC, economic strategist Boris Schlossberg said that while he does not think the U.S. is headed for a recession, stocks appear to be peaking at this point.

Schlossberg compared today’s economic conditions to 2012, when the economy stalled but quickly regenerated. “The key conditions are very good,” he explained. “Labor conditions are starting to tighten. That means wages are going to go up, consumer spending should increase, and should fuel further growth into next year.”

Yeild-curve

Todd Gordon of Trading Analysis disputed Citi’s claims about rate curve inversion, arguing that the U.S. economy is nowhere near such a scenario, especially when compared to 2000 and 2007 market peaks.

 

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