by Calculated Risk on 12/28/2012 08:40:00 PM

From a Goldman Sachs research note today:

Q: Where do things stand now?

A: Talks have resumed, but as of this writing there is no agreement yet. President Obama and congressional leaders met this afternoon to discuss the possible next steps that might be taken to avoid the fiscal restraint set to take effect at year-end. It seems likely that Senate Majority Leader Reid (D-NV) will bring up legislation on the Senate floor at some point before the end of the year, but it is not yet clear whether that will be the product of a bipartisan compromise reached with Republican leaders and the President, which would have a chance of passing both chambers of Congress, or a proposal supported only by Democrats, which would be less likely to pass in either chamber, particularly the House.

Q: Will there be an agreement by year-end?

A: It is still possible but a retroactive deal in January looks more likely. With little time left before year end, there are two obvious obstacles to enacting an agreement by that time: the lack of a political agreement, and the short time left on the calendar to get any agreement that might be reached enacted into law. Reaching a political agreement is the tougher part. ...

Q: If an agreement is reached, what would it look like?

A: Probably a scaled-down deal. At this point, the most likely solution prior to year end (or in the first few days of 2013) would be enactment of a scaled-down agreement that addresses only the policy changes scheduled for year-end and leaves for later other issues, such as an increase in the debt limit or longer-term fiscal reforms. This might involve an extension of the 2001/2003 tax cuts for income under $400,000 or $500,000 (including capital gains and dividend tax rates at 15% for taxpayers with income under that level and a 20% rate above), relief from the alternative minimum tax (AMT) for 2012, and extension of emergency unemployment benefits, which are scheduled to expire at year end.

And comments from a WSJ article: Cliff Deal Hinges on Senators

"We had a good meeting down at the White House and we are engaged in discussions…in the hopes that we can come forward as early as Sunday" with a plan, said Senate Minority Leader Mitch McConnell (R., Ky.). "We'll be working hard to try to see if we can get there in the next 24 hours," he said, adding he was "hopeful and optimistic."

Senate Majority Leader Harry Reid (D., Nev.) agreed the meeting was "constructive." In a warning that seemed aimed at lawmakers in both parties, he said, "whatever we come up with is going to be imperfect."

Mr. Obama said Messrs. McConnell and Reid have the weekend to reach and pass a deal.

There is some chance a deal will be announced this weekend, but it will not be a big deal if it slips into early January.