Goldman Sachs say a stock market plunge could reduce US GDP growth, hit Fed policy

In summary from a Goldman Sachs note on stock market gyrations.

• Goldman warns stock market selloff may affect GDP growth
• A 5% equity drop and 21bp fall in 10-year Treasury rate could reduce GDP growth by 12bp over next year
• Every 10% stock market decline estimated to cut GDP growth by 45bp
• Including other asset moves, the total impact could be around 85bp
• A 20%+ selloff would be needed to push the economy into recession, given current GDP growth above 2%
• GS says the ‘wealth effect’ is a key driver, consumers may reduce spending as investment values fall
• A further market decline could influence Fed’s monetary policy decisions
• Goldman says the Fed is unlikely to intervene with current 7% S&P 500 drawdown from record high
• Some commentators calling for emergency rate cuts, but Goldman says no serious market disruptions yet
• “While market stress is noticeably higher than a week ago, our FSI suggests that there are no serious market disruptions to date that would force policymakers to intervene”

This article was written by Eamonn Sheridan at www.forexlive.com.