Goldman Sachs has advised investors to consider capitalizing on potential short-term weakness in the US dollar (USD) that may arise as a result of a government shutdown. The firm argues that while there may be initial negative impacts on real GDP, overall nominal growth would largely remain stable, and any decline would likely be temporary. They also note that a government shutdown primarily affects real GDP, assuming that federal workers receive their full wages retroactively after the shutdown ends. This suggests that while economic output may be disrupted, the total value, including inflation, remains relatively stable. Additionally, Goldman Sachs highlights the implications for inflation and the Federal Reserve’s ability to act, citing past examples where the Fed made decisions despite limited data availability during a government shutdown.
In summary, Goldman Sachs recommends investors to fade any USD weakness resulting from a potential US government shutdown. They believe that although there might be short-term negative impacts on real GDP, the overall nominal growth would largely remain intact, and any decline would likely be transient. The firm also points out that there may be an increase in PCE inflation due to the difference between real and nominal GDP during a shutdown, and a workers’ strike could lead to wage gains. While a “data blackout” during a shutdown could slightly impede the Federal Reserve’s ability to enact a rate hike, Goldman Sachs emphasizes that there is ample data available from both the Fed and private sectors to inform decision-making. Based on historical examples, the firm concludes that the economic impacts of a government shutdown may not be as severe or long-lasting as feared.