4th Quarter GDP Downturn Looks Certain

4th Quarter GDP Downturn Looks Certain
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 As a result of modestly stickier inflation, stronger overall growth and lower unemployment. Additionally, 12 of the FOMC participants projected one more hike this year while 7 participants projected that the funds rate would remain unchanged.

While on the surface this would be dire news for stocks, the reality is that none of this matters for two simple reasons: i) the Fed’s predictions are always wrong, especially about the future, and ii) the US economy – still artificially buoyed by staggering debt outflows (such as the $1 trillion issued in the just the past three months) – is about to hit a brick wall, putting an abrupt end to the Fed’s attempt to “cool” the economy which is about to fall off a cliff.

Let’s start with the former, where we remind readers that one week ago Goldman, which has been one of the biggest cheerleaders of Bidenomics, said that Q4 GDP is about to slump for three reasons:

  • First, the resumption of student loan payments, which will subtract (at least) 0.5% (and likely much more) from quarterly annualized GDP growth
  • Second, the federal government shutdown looks all but assured: a government-wide shutdown would reduce quarterly annualized growth by around 0.2% for each week it lasted after accounting for modest private sector effects.
  • Third, reduced auto production from the ongoing UAW strike would reduce quarterly annualized growth by 0.05-0.10% for each week it lasted.

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