Is Obama Bringing a Workable Solution to Friday’s Fiscal Cliff Meeting?

elections republicans democratsSpeculation and hope is all that market participants have to go on as President Barack Obama heads to a meeting with congressional leaders at 3 p.m. on Friday afternoon. Just one full weekday remains before the fiscal cliff, which if left alone will raise taxes on all Americans and enact severe austerity measures that will pull hundreds of billions of dollars out of the U.S. economy and catalyze what many fear will be another recession.

Understandably, the markets started the day with an air of pessimism. House Republicans won’t return to Washington until Sunday and rhetoric from both sides of the aisle grew increasingly combative over the past few weeks. Futures traded lower in the pre-market and the major indices dropped about half a percentage point each early in the morning session.

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But by about 11 a.m. on Friday the markets began to pare back some losses. The Dow, which dropped nearly 100 points just after 10 a.m. and dipped below 13,000, pulled up about 50 points on news that President Obama will be bringing a scaled-back budget package to the table this afternoon. The S&P 500 and the Nasdaq also recovered some ground, but were all still in negative territory late in the morning.

Obama will bring his proposal to a table populated by House Speaker John Boehner (R-Ohio), House Minority Leader Nancy Pelosi (D-California), Senate Majority Leader Harry Reid (D-Nevada), and Senate Minority Leader Mitch McConnell (R-Kentucky).

It’s unclear if the President’s proposal will be able to gain traction with Democrats or Republicans. The nature of the negotiations so far suggests that a so-called “Grand Compromise” between the parties could be a fiction. Boehner’s Plan B proposal was about as conservative a proposal as Democrats could conceivably agree to, but was too liberal for House Republicans, who torpedoed the bill before it even got to vote.

According to the Tax Policy Center, if Congress does nothing about the cliff, taxes will go up an average of $3,446 per year for U.S. households.

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