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The signs are starting to add up that the United States is at the top of the economic cycle, and therefore headed down, likely into a bear market and recession, an increasing number of economists and money managers say. The main culprit for the looming downturn, they say, is the Federal Reserve, which is expected to again raise U.S. overnight interest rates on Wednesday.

Led by new Chair Jerome Powell, the Fed is slowly bringing interest rates up from zero, where they stood for around a decade, attempting to stabilize the economy and keep inflation from creeping higher. While few argue that interest rates should remain at zero forever, many are expecting the withdrawal of the liquidity cushion the U.S. central bank has provided for the economy to lead to some negative consequences.

“When the music stops I do think it’s going to be pretty ugly,” said Jonathan Beinner, chief investment officer of global fixed income at Goldman Sachs Asset Management.

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Stock markets have generally moved into the green for this year, but a number of fund managers are warning that they don’t expect this to last. (AP Photo/Sadiq Asyraf)

Beinner highlights the increase of global debt, now upwards of $237 trillion[1] and the way the debt has been dispersed as risks to the economy. Rather than banks holding most of the debt as it happened in the financial crisis, this time it’s hedge funds, private equity and investment managers holding most of it. Also worrisome, he says, ratings agencies are again being overly generous with their appraisals allowing for companies with very high debt levels to gain investment-grade ratings.

“We’ve sown the seeds for the next downturn and there’s a lot of...

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