Jan 04, 2013 | by Franck Cushner, CFP®
As a final hour resolution between the house and senate was finally reached, the market began to anticipate what affects the budget deal passed would have on the overall economy.
With legislation passed to avert dramatic tax increases and federal spending cuts that would have occurred Jan 1st, the level of uncertainty that existed throughout December has alleviated.
The next debate between the house and senate will be regarding the U.S. statutory debt limit, which was reached on Dec 31st at $16.4 trillion. This has forced the Treasury Department to take what it called "extraordinary measures" to keep funding the government for the time being. The Treasury expects that it will probably exhaust such measures by late February or early March.
Because of a recurring debt limit issue, the potential of a U.S. debt credit downgrade by Moody's and Fitch is still a concern, as Standard & Poor's downgraded U.S. debt from a AAA status in 2011.
Lingering unresolved details may affect tax returns this year, as the IRS acting commissioner, Steven T. Miller warned on December 19th that "most tax payers may not be able to file their 2012 tax returns until late March 2013, or even later" due to non resolutions on the AMT. This will create lengthy delays of tax refunds resulting in less money to hit the economy as it usually does this time of year. Miller also expects 80-100 million tax returns not being filed on time, of a total 150 million returns.
For the first time ever, the Federal Reserve set a specific target on employment, not just inflation. In its Dec 12th announcement, the Fed promised to keep short-term rates near zero "at least as long as the unemployment rate remains above 6.5%". Fed members do not expect unemployment to reach 6.5% until well into 2015, thus anticipating a continued long-term low rate environment.
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