Economic Outlook Positive Amid Electoral Uncertainty

By John S. McClenahen As the two major political parties go to court and Friday's deadline for counting Florida's overseas absentee ballots comes closer, the economic outlook is not all that bad. The economy is slowing, but not to the point of tipping over into recession. The Federal Reserve System's Federal Open Market Committee, which sets short-term interest rates, clearly remains concerned about inflation. "But within the next few months, the Fed will probably adopt a neutral bias," believes Bruce Steinberg, chief economist at Merrill Lynch & Co., New York. In the meantime, he sees a mostly positive outlook for U.S. financial markets, thanks in part to political gridlock in Washington. "Huge [federal budget] surpluses should persist, and much more public debt is likely to be paid down than if either party was in a position to carry out most of its program," says Steinberg. "In short, if we can get past this period of electoral uncertainty without having a constitutional crisis, the election outcome is generally favorable for the financial markets."

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