Tags: Congress | elections | fiscal | cliff

CNNMoney: Congressional Elections Key to Resolving Fiscal Cliff

By    |   Tuesday, 09 Oct 2012 08:51 AM

Which party gains control of Congress will have a bigger effect on the stock market — and, in the short run, the economy — than the race for the White House will because it’s lawmakers who will have to negotiate a resolution to the fiscal cliff, according to nearly 60 percent of investment strategists and money managers surveyed by CNNMoney.

"Congress is key to the fiscal cliff issue, which is nearing the front burner of the market, so we place more importance on them," said Kim Forrest, senior equity analyst at Fort Pitt Capital.

The Congressional Budget Office and most economists predict that failure to resolve the fiscal cliff, the tax increases and sequestration spending cuts set to take effect on Jan. 1, will drive up unemployment and push the economy back into a recession, CNNMoney reported.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

With Congress divided, lawmakers have been unable to agree on a plan to break the impasse before the mandated measures take effect.

While polls indicate the Republicans will keep control of the House of Representatives, the Senate could go either way, which makes that the most important race of all, according to Phil Orlando, chief equity market strategist at Federated Investors.

"The fiscal cliff is a ticking time bomb, and the success or failure of this election will be whether the new crew will be able to diffuse it," Orlando said, according to CNNMoney.

Without clarity on fiscal policy, most of those surveyed said stocks are likely to weaken despite Federal Reserve policies to lower rates and boost employment and markets, CNNMoney reported.

"The Fed is doing all that it can, but even that's not enough," said Orlando, nothing that Fed Chairman Ben Bernanke has repeatedly warned that Congress needs to act.

The International Monetary Fund, in its latest global economic outlook, called on U.S. policymakers to search for a resolution of the fiscal cliff before it takes effect, Bloomberg reported.

The IMF predicted that the U.S. economy would grow 2.2 percent this year, higher than an earlier forecast.

The eurozone economy will contract 0.4 percent this year, compared with a 0.3 percent contraction forecast in July, the IMF said, and the eurozone will grow 0.2 percent in 2013, less than the 0.7 percent predicted three months ago.

The IMF predicted the global economy would grow 3.3 percent this year, the slowest since the 2009 recession, according to Bloomberg.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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Which party gains control of Congress will have a bigger effect on the stock market — and, in the short run, the economy — than the race for the White House will because it’s lawmakers who will have to negotiate a resolution to the fiscal cliff.
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Tuesday, 09 Oct 2012 08:51 AM
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