As the deadline for fiscal peril in the U.S. nears, Wall Street is
worried that the impact could be much worse than anyone thought—while
investors remain nearly oblivious to the danger.
Looming tax increases and spending cuts — which Federal Reserve Chairman Ben Bernanke has labeled the "fiscal cliff" — would send the economy into a deeper recession than many have predicted, according to economists at Bank of America Merrill Lynch.
Looming tax increases and spending cuts — which Federal Reserve Chairman Ben Bernanke has labeled the "fiscal cliff" — would send the economy into a deeper recession than many have predicted, according to economists at Bank of America Merrill Lynch.
At
the same time, fund managers the firm surveyed believe investors are
far too optimistic that warring Washington factions can get together to
take the steps necessary to prevent the economy from going over the
cliff—at least temporarily.
Some
72 percent of respondents believe investors have yet to price in the
ramifications—a view that is spreading across Wall Street as time winds
down for a solution.
"The
fiscal cliff impacts the economy both by creating uncertainty and by
imposing austerity," Ethan Harris, BofA's North American economist, said
in a report. "If we go over the cliff for an extended period of time, a
recession is likely."
He
later added, "One reason we remain cautious on equities for the next
few months is the likelihood for heightened volatility and the potential
for a near-term correction amid the risks posed by the US presidential
election and the fiscal cliff."
Read more: http://www.cnbc.com/id/49478505
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