FAST FIVE: Goldman Gives Up On New Stimulus In 2020, Cuts Q4 GDP Growth Forecast From 6% To 3%
Goldman Gives Up On New Stimulus In 2020, Cuts Q4 GDP Growth Forecast From 6% to 3% Tyler Durden Thu, 09/24/2020 – 09:15 “A US fiscal deal was baked into markets and now what you are seeing is that the probability of a deal going through has simply reversed,” said Legal and General Investment Management PM Justin Onuekwusi, and he couldn't be more correct when it comes to big bank analysts who during the August meltup were rushing to upgrade their GDP forecasts (if only to validate the market meltup which we now know was not due to fundamentals but a gamma squeeze orchestrated by SoftBank and facilitated by Robinhood traders).
Even as we were warning all the way back in late July that the fiscal cliff – and the lack of new stimulus clarity – threatens to derail the tepid economic rebound, sellside analysts were tripping over each other to upgrade their Q3 and Q4 GDP forecasts.
Indeed, as Justin adds, “we have heard this week how important a fiscal deal is to the Federal Reserve but from a political standpoint, focus has moved more towards the election and Supreme Court deliberations rather than the economy,” and sure enough, overnight the first GDP downgrade came from Goldman Sachs, which aggressively reversed on its previous “base case” of a $1.5 – $2 trillion stimulus being passed “shortly”, and as a result the bank just slashed its Q4 GDP growth forecast in half from 6% to 3%.
Here's why: We think it is now clear that Congress will not attach additional fiscal stimulus to the continuing resolution. This implies that after a final round of extra unemployment benefits that is currently being disbursed, any further fiscal support will likely have to wait until 2021.
And as noted above, and as we said almost two months ago, Goldman now expects that the hit to disposable income “will weigh on consumer spending in Q4, though probably somewhat less than we initially feared” as shown in the next chart.