This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Fiscal Cliff Likely To Slow Growth, But Not Cause Recession, According To Standish

NEW YORK and LONDON, Oct. 25, 2012 /PRNewswire/ -- The U.S. fiscal cliff is not likely to send the economy into a recession, according to the October Bond Market Observations from Standish Mellon Asset Management Company LLC, the Boston-based fixed income specialist for BNY Mellon.

For bond investors, Standish said this means there could be opportunities in U.S. corporate credit markets.  Both U.S. investment grade and high-yield bonds over the last 20 years have posted positive excess returns when U.S. economic growth ranged between one percent and two percent, the report said.

Standish believes that a combination of recent actions by the Fed and an expected compromise deficit reduction package would be enough to prevent a recession.  The Fed's asset purchase program has eased financial conditions and supported the housing market.

If no action is taken to avoid the fiscal cliff, tax hikes and spending cuts amounting to 4.8 percent of U.S. gross domestic product (GDP) will go into effect on January 1, 2013, the report notes.  However, Standish said a compromise deficit reduction package could reduce this drag to 1.4 percent of GDP. 

"While we don't see much room for cooperation between the Democrats and the Republicans on addressing the fiscal cliff, we also doubt either party will want to be held responsible for engineering a U.S. recession by allowing the entire $807 billion in deficit-cutting measures to take effect," said Thomas Higgins, global macro strategist for Standish.

Among the deficit-reduction efforts that Standish does expect will be an end to the two-percentage point reduction in the Social Security payroll tax, which has benefited U.S. households over the past year.   The Social Security program already is underfunded, and extending the payroll tax reduction will aggravate this shortfall, according to the report.

Standish also expects the Medicare payroll tax increase and the new surtaxes for high income tax payers on dividends and capital gains associated with the Affordable Care Act to become effective unless the Republicans sweep the Presidency and Congress.

"Under our base case scenario, the U.S. economy will suffer a fiscal drag of roughly 1.4 percent of GDP next year and U.S. real GDP growth will decelerate from 2.1 percent in 2012 to 1.4 percent in 2013," Higgins said.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.27 -0.76%
FB $101.00 1.47%
GOOG $684.12 0.89%
TSLA $143.67 -3.09%
YHOO $27.10 1.04%


Chart of I:DJI
DOW 15,914.74 -99.64 -0.62%
S&P 500 1,851.86 -0.35 -0.02%
NASDAQ 4,283.5920 +14.8290 0.35%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs