The Atlanta Fed updated its model for Real GDP (“GDPNow”). The Atlanta Fed’s 3.2% Real GDP estimate as of today is down from 3.7% as of September 21st.
We have previously written that real GDP growth may very well be zero percent or even negative as we believe the Federal Reserve underestimates true price inflation as calculated by the GDP deflator. There are few places to pursue real returns when one considers double-digit price inflation for assets, goods and services combined with the negative real interest rate backdrop.
Public debt outstanding (approximately $28.4 trillion), is the albatross around the U.S. Economy’s neck that makes it difficult to imagine:
1.) an interest rate environment that encourages savings given the fiscal side could not afford to service its outstanding debt were rates to climb to a level where it was possible to generate yield in real terms;
2.) an economy capable of consistently generating Real GDP growth north of 1-2%.
It would seem that the only means by which to out-pace Government’s appetite for value destruction are:
a.) reasonably-priced equities;
b.) private company investments and other alternative asset classes with risk profiles that many market participants may not be comfortable with.
Negative real rates, meager Real GDP growth (if any) and pervasive price inflation smells like stagflation to us. We are living it despite what the Federal Reserve may tell you.
Access the Atlanta Fed’s GDPNow estimate HERE.