Why anti-obesity drugs could transform healthcare

- What's next for the Fed and the US economy # # --------------------------------------------------------------- The key takeaways today: - Inflation is likely to fall further as US avoids recession - The huge potential of anti-obesity drugs - The cost of a US government shutdown - The NBA's Chris Paul on lessons from the court - Brainteaser: The shrinking US money supply Was this newsletter forwarded to you? ([Sign up now.]( --------------------------------------------------------------- The Fed is likely finished hiking rates... Worries that the Federal Reserve will continue raising interest rates to tame inflation appear to be fading amid encouraging signs in the jobs market. “The puzzle of 2023 has been that we have indeed seen demand reaccelerate this year, but nevertheless, labor market rebalancing has continued in exactly the way you would have hoped,” David Mericle, Goldman Sachs Research's chief US economist, says on [Goldman Sachs Exchanges](. “That's been a bit of a stroke of good luck.” The job market is rebalancing as people continue to look for jobs, US immigration runs higher than usual, and companies pull back on hiring, potentially because distortions from the pandemic are fading. “It's good news for the FOMC,” Mericle says. “It means that the strong demand growth we worried about at the start of the year actually hasn't been particularly costly because rebalancing has continued anyway, and I think there are a lot of signs that inflation will fall quite a bit further.” As a result, Goldman Sachs Research expects the Fed to pause rate hikes later this month and to start cutting rates in the second quarter of 2024. And while a recent spike in interest rates is raising concerns about the consumer impact, the effect on GDP growth is largely in the past, Mericle notes. ...as the US avoids a recession As inflation cools and employment remains resilient, a US economic downturn is becoming less likely. Our economists [cut their 12-month recession probability to 15%]( down five percentage points from their prior estimate. The forecast is far below the Bloomberg consensus of economists, which remains at 60%. Goldman Sachs Research is also much more optimistic about US growth than most other forecasters. Our economists see GDP growth averaging 2% through the end of 2024. --------------------------------------------------------------- The huge potential impact of anti-obesity drugs Anti-obesity drugs could “[transform the state of healthcare]( according to Jenny Chang, portfolio manager with Goldman Sachs Asset Management.  An estimated 42% of American adults are obese, and obesity costs the US healthcare system $170 billion each year, she says, adding that the consequences of overweightness and obesity are expected to drag down global GDP by $4 trillion in 2035. Yet medical treatments have historically been limited, “leaving the market open for this new crop of drugs,” Chang says. The drugs are expensive, and insurers have been hesitant about providing coverage. But clinical trials show the drugs reduce the risk of heart attack and stroke. “By fighting obesity, these drugs seem to be fighting heart disease, which is the leading cause of death,” Chang says. “This puts the onus on insurers to rethink their approach.” It‘s now forecast that anti-obesity drugs will be a [$44 billion market by 2030]( Chang notes. “We see anti-obesity drugs as one of the biggest drug classes to be created,” she says. --------------------------------------------------------------- How much could a US government shutdown cost the economy? As discussions in Washington over federal spending continue, the potential for a government shutdown is growing. A [shutdown would probably have a modest effect on the economy]( which may also make a sustained impasse over spending more likely, according to Goldman Sachs Research.    “Unlike the debt limit, where Congress reached a deal because the potential hit to the economy from an impasse would have been so severe, a shutdown would be much more manageable from a macroeconomic perspective,” Goldman Sachs Chief US Political Economist Alec Phillips [writes in the team's report](. “However, compared to the debt limit, the less severe economic effect of a shutdown also makes it more likely that Congress fails to act in time.”   A government-wide shutdown would directly reduce growth by around 0.15 percentage points for each week it lasted, or about 0.2 percentage points per week once private sector effects were included, with growth rising by the same cumulative amount in the quarter following reopening, Phillips writes.  While federal spending is equal to almost a quarter of gross domestic product, the impact of a shutdown is much smaller, in part because only discretionary spending (about a quarter of federal outlays) would be affected. --------------------------------------------------------------- NBA all-star Chris Paul's lessons from the court Chris Paul has been an NBA all-star and Olympic gold medalist. But more than anything, he's been a student. “Everything I need to know in life, I learned from playing sports my entire life,” he explains. John Waldron of Goldman Sachs and Chris Paul “On and off the court, the biggest thing I always talk about is communication,” Paul says in a [Talks at GS session]( with Goldman Sachs President and COO John Waldron. “Because if we're playing basketball and a guy is cutting back door, I can't expect for you to know that. And that's what always happens: Whenever you see guys arguing on the court, most of the time it's like, ‘Yo, I thought you were going to do this.'” Paul has taken that lesson of active communication to his work off the court, where he runs Ohh Dip!!!, a media-production company. “If you say it, then you know it,” he says. “If there's an issue with two people at work, I try to address it as best as possible head on. So, at some point, if you just have that hard conversation — which is not fun — you're going to move on and appreciate that you talked about it,” he says. --------------------------------------------------------------- Briefings Brainteaser: A shrinking money supply The US money supply is contracting for a range of reasons, including changes in monetary policy and rising interest rates. When was the last time the aggregate known as M2 money supply shrank?  A) 1929 B) 1949 C) 1987 D) 2008 [Check the answer here.]( --------------------------------------------------------------- Goldman Sachs in the news [CNBC]( August 2 [This international stock picker beats the market long term by mastering downside risk]( --------------------------------------------------------------- --------------------------------------------------------------- Some of the images used in this newsletter are sourced via Getty Images. 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