Goldman Sachs suggests that investors should take advantage of any potential weakness in the US Dollar (USD) resulting from a US government shutdown. The firm believes that while there might be initial negative impacts on real GDP, the overall nominal growth would largely remain intact, and any decline would likely be transient. They provide several reasons for this stance, including the temporary nature of the decline, the distinction between real and nominal GDP, the implications for inflation, and the past actions of the Federal Reserve post-shutdown.
One of the key points raised by Goldman Sachs is that a significant portion of the decline caused by a government shutdown and workers’ strike would likely be reversed in the subsequent quarter. This suggests that the negative impact on the economy might only be temporary. Additionally, the effects of a government shutdown would primarily impact real GDP, while nominal growth would remain stable. This assumption is based on the belief that federal workers would receive their full wages retroactively after the shutdown ends.
Furthermore, Goldman Sachs highlights the implications for inflation during a shutdown. Due to the difference between real and nominal GDP, there is a technical increase in Personal Consumption Expenditures (PCE) inflation. Additionally, a workers’ strike could lead to wage gains, which could complicate managing inflation targets while the labor market remains robust. However, the firm also notes that a potential “data blackout” during a shutdown might slightly impede the Federal Reserve’s capability to enact a rate hike. Nevertheless, they emphasize that there is ample data available from both the Fed and private sectors to make informed decisions.
In summary, Goldman Sachs suggests that investors should consider countering potential short-term weaknesses in the USD resulting from a US government shutdown. They believe that the overall impact on the economy might not be as severe or long-lasting as feared, citing factors such as the temporary nature of the decline, the distinction between real and nominal GDP, and the past actions of the Federal Reserve.