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Could 'fiscal cliff' push US into recession? Four questions answered
The nonpartisan Congressional Budget Office (CBO) warned in a report Tuesday that if Congress does not deal with a raft of fiscal measures by Dec. 31, the US could enter another recession. So what is this fiscal cliff and what is Congress doing about it?
Federal Reserve Chairman Ben Bernanke has reportedly told senators that Washington is headed for a 'fiscal cliff.' (Susan Walsh/AP/File)
4. What’s most likely to happen in December?
The real pressure-cooker is that Congress put off all these decisions until after the November elections. That has left a mere few weeks for handling the full magnitude of the fiscal cliff.
Because jamming all those issues into one sliver of a congressional work period – and momentum on how to head off the crises appears minimal at best – the parties are likely to pass a stopgap extension of current policy for several months.
“My money is on temporary extensions in December, followed by the enactment of a hard fought one-year compromise next February retroactive to January 1, 2013,” wrote Pete Davis of Davis Capital Investment in a note to clients earlier this year.
As the CBO points out, however, time is of the essence.
“Although there are trade-offs in choosing when policy changes to reduce future deficits should take effect, there are important benefits and few apparent costs from deciding quickly what those changes will be,” it wrote.
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