Will the fiscal cliff hurt the economy? Wall Street says maybe

at 11:31 AM ET, 06/19/2012

After last summer’s debt-ceiling debacle, Wall Street is divided about whether the fiscal cliff could harm the economy. On the one hand, Barclays Capital surveyed its institutional investors, and they were overwhelmingly confident that Congress could reach a deal without adverse harm to the economy:


Barclays

A separate poll, of the Securities Industry and Financial Markets Association’s own economic roundtable, was much more pessimistic. Nearly all of the firms polled believed that “uncertainty over fiscal policy will continue to negatively impact GDP growth in 2013, split fairly evenly between those expecting a negative impact of up to 100 [basis points] and those expecting a negative impact of over 100 bps.” That said, the majority of those polled expect a temporary extension of the Bush tax cuts as a stopgap measure.

The split may reflect the mixed messages that Washington has sent on the fiscal cliff: Members of Congress have issued dire warnings about “taxmaggedon,” and the House Speaker says that he welcomes another debt-ceiling fight. At the same time, the Center on Budget and Policy points out that the fiscal cliff is more like a fiscal slope, as the biggest changes after January 1 will be phased in gradually. Over the next few months, however, the market’s outlook on the fiscal cliff could take a downward turn if Congress fails to assure the public that some kind of deal can be struck.

 
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