At a press briefing held with other BNY Mellon executives on Wednesday, Arledge said that he was heartened by the fact that the president talked about the difficult decisions the nation will need to make on both the revenue and spending side. He also noted the president’s John Kennedy-esque message asking citizens to become more responsible for the challenges facing the nation.
“Last night’s speech showed that he knows that he needs the whole country engaged and to work with him,” Arledge said of President Obama.
Arledge said that he thinks the president will do his best not to crush “an economy that’s just getting back on its feet” and to implement fiscal discipline. “The wrong thing to do is put ourselves in a situation where we only can do austerity. If you never do anything on the fiscal discipline side but you wait for the economy to be great, then you never get the opportunity … to do the things you need to do.”
Richard Hoey, BNY Mellon’s chief economist, was also optimistic that the government would be able avoid the fiscal cliff, reasoning that congressmen don’t want to be blamed for a “recession we didn’t need to have,” he said. Hoey noted that the alternative minimum tax that would go into effect if Bush-era tax cuts are allowed to expire by year-end greatly increases the odds that congressman will “regard it in their self-interest to fix the fiscal cliff.” If unable to reach an agreement, an extra 28 million households would be subject to the alternative minimum tax on their 2012 income, Hoey said.
Hoey believes that it’s possible the fiscal cliff will be fixed in the first few days of 2013 rather than the last few days of 2012. He noted that if the nation went over the fiscal cliff for a few days – in a so-called “bunjee jump scenario” – the recessionary consequences would be much less than it if went over the fiscal cliff and stayed there for the entire year.
Hoey does not believe the government will be able to pass a “grand bargain” on the nation’s fiscal and budget issues. He sees the government achieving a “small bargain” because, he said, “it’s easier for everybody to compromise just a little as opposed to everybody compromising a lot. ”
David Leduc, the firm’s chief investment officer, also anticipates that negotiations on the fiscal cliff will get resolved. “I will submit to you that the opportunity for potential upside is to have better coordination on fiscal issues than people think. That’s the thing that’s not priced into the market,” Leduc said.