A congressional panel is supposed to agree by Thanksgiving on a deficit-reduction package of at least $1.2 trillion. If it fails, federal spending would automatically be cut by that amount starting in 2013.
Congress may also let emergency unemployment aid and a Social Security tax cut expire at year’s end.
Either outcome could slow growth and spook markets.
Analysts are concerned, but most aren’t panicking.
Many say the economy and markets will likely muddle through. It’s possible that the supercommittee will reach a partial deal that might limit the impact of the automatic cuts in 2013. Congress could also pass legislation next year to ease the scope or timing of the spending cuts.
And investors expect so little from the congressional panel that they’re unlikely to overreact whatever it does.
“There’s no doomsday scenario in reducing government spending,” said David Kelly of JP Morgan Funds.
The 12-member bipartisan panel, or supercommittee, was created in August to defuse a political standoff over raising the federal borrowing limit. If it can’t agree on a deficit-reduction plan, automatic spending cuts would hit programs prized by both parties: social services such as Medicare for Democrats, defense for Republicans.
The panel appears to be deadlocked.
Many economists hoped that an extension of the Social Security tax cuts and unemployment benefits would be part of a supercommittee deal. Congress could extend those benefits separately. But it would be under pressure to offset the cost to avoid raising the deficit.