In a late night session, the US Senate approved a deal to avert the fiscal cliff. When markets open after the New Year’s holiday, we could get some rises in stocks and and a weaker dollar. We’ve seen this process begin before the holiday.
However, this is far from a comprehensive long term solution. Here are 3 things to worry about.
The Senate voted 89 to 9 in favor of a deal that avoids tax hikes for individuals earning up to $400K a year and families earning up to $450K a year.
Obama was already quick to celebrate the fact that Republicans retreated from their original refusal to raise any taxes. But nothing is certain yet.
All in all, politicians did what politicians always do: reach a partial and temporary agreement. The situation now is better than it was before the deal was struck. However, a smaller crisis is still looming at the end of February.
It will be interesting to see if the new House, where Tea Party Republicans command a smaller majority, will work differently: if moderate Republicans and moderate Democrats will find a way to push forward compromises rather than stick to partisan lines.