All eyes on the fiscal cliff as conflicts linger
INVESTOR worries over the so called US fiscal cliff are growing following the re-election of Barack Obama to the White House and continuing Republican control of the House of Representatives.
Republican House speaker John Boehner last night told Obama that his colleagues were ready to be led towards a fiscal solution.
Democrat Obama’s first term was scarred by a failure to strike a compromise in the House over a plan to heal America’s potentially crippling level of government debt and annual deficit.
And if Congress cannot find an agreement on a new fiscal plan by January, the US faces an automatic $600bn hit from scheduled tax rises and spending cuts – which some economists say could severely jolt its economy.
“Mr President, this is your moment. We’re ready to be led, not as Democrats or Republicans, but as Americans,” Boehner said.
“We want you to succeed. Let’s challenge ourselves to find the common ground that has eluded us. Let’s rise above the dysfunction and do the right thing together for our country.”
Yet ETX Capital’s Andrew Edwards warned: “Failure by the US government to tackle the fiscal cliff is likely to see the world’s biggest economy slip back into a recession, while the anaemic recovery in the jobs market will continue to unnerve markets in the short term until we see a meaningful improvement.”
Todd Schoenberger of BlackBay Group in New York added: “Traders on the floor are thinking, before the election Obama wasn’t able to resolve the fiscal cliff so what makes you think he’s going to be able to do it after the election? That’s the big issue right now.”
Yet stock markets could be propped up by the Fed’s ongoing quantitative easing programme. Presidential candidate Mitt Romney had been hostile towards Bernanke’s asset-buying scheme, with his defeat at the hands of Obama likely to see Bernanke continue to promote monetary easing at least until the end of his current term in January 2014.