Many Wall Street analysts are weighing in on what they see on Capitol Hill and the prospect that the most impactful elements of the sequester can be avoided. Many believe that we are in for at least some big chunks of the sequester – and deficit hawks are steadfast about that. Still, there is a significant near term impact on US (and global) economic activity as a result of the sequester, and that’s what most of us will be focused on.
We’ve mentioned it many times, but the sequester could lead to as many as 1 million job losses, salary reductions for about 800,000 civilian employees in the military, closing or reduced staffing in thousands of Federal and State agencies, etc. The full impact of the sequester simply isn’t fully understood. And that’s the real risk. We can see the impact of the uncertainty in the stock market, it’s lost almost 200 points in two days.
Congress has been on recess and won’t return to work until Monday. At this time, there just isn’t a lot of scrambling happening to try and get a deal done on the sequester. All three major segments of the Government have introduced some alternative plans to help avoid the most impactful segments of the sequester – but none of it is close to a compromise deal. That’s why many people believe that next week’s deadline will come and go without a deal. Since some agencies have until March 22nd to get a compromise done before they have to cut operations, there is seemingly some leeway for Congress. Some believe that they will allow March 1st to come and go without a deal in order to bring some urgency to the negotiations which would then theoretically help usher in a long-term solution. However, we know that some private corporations and several government agencies are planning to start making their cuts if a deal isn’t reached by March 1st. This will be the big headline topic next week – and more information will surface each day concerning the impact of the sequester on the economy. And, as we get economic reports at the end of the month – that will begin to weigh on the market and the economic outlook for 2013. So, stay tuned for a volatile week next week.