Earlier we highlighted JPMorgan’s outlook for the odds of falling off the “fiscal cliff” when tax breaks expire on January 1, 2013. JPMorgan’s chief U.S. equity strategist, Tom Lee, sees a 15 per cent chance that we go over the edge without a resolution to the disagreement on whether to extend the tax breaks or not.
Former JPMorgan head of government relations Tom Block put together this graphic – which Tom Lee included in his latest note to clients – showing the bank’s estimated probabilities on four different fiscal cliff outcomes, conditional on who wins the presidential election in November:
And here is JPMorgan chief U.S. economist Michael Feroli’s estimates on how GDP growth would be impacted under each of the four outcomes outlined above:
So, even in their base case, JPMorgan is looking for a 0.5 per cent reduction in GDP growth in the first quarter of 2013 followed by a 0.3 per cent reduction in the second quarter from the effects of the fiscal cliff.
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