The danger facing the U.S. economy is far more likely to resemble a slow boil rather than a sudden drop off a fiscal cliff, says Jack Ablin, chief investment officer, BMO Private Bank in Chicago.

“The way I would characterize it is, we’ve got this pot of water and the economy is this little frog sitting in the water and right now everything is fine but starting January 1st the heat is turned on,” said Ablin during a BMO outlook conference call on the fiscal cliff. “And depending on how long it takes to negotiate a grand bargain or some sort of a long-term resolution really determines how much heat there is on the economy.”

If the fiscal cliff is resolved within the first few weeks of 2013, said Ablin, the U.S. economy will continue to move in a positive direction. On the other hand, if it takes longer for politicians to negotiate a deal there’s the potential that corporate earnings and economic data could be lower than expected.

Ultimately, Ablin believes that a “grand bargain” will be reached probably by mid-year. As a result, Ablin expects the U.S. economy to grow between zero and 1.5% for the year while earnings for the S&P 500 will be flat.

Most market participants are also of the opinion that a bargain will be reached to resolve the fiscal cliff, said Scott Graham, head of government bond trading, BMO Capital Markets in Chicago. As such, that scenario has already been “baked into the cake” of capital markets prices. If, however, nothing is done and the U.S. economy does run off the fiscal cliff, said Graham, that will seriously affect yield in the bond markets.

In Canada, the economy is currently set for positive fourth quarter growth at 1% to 1.5%, said Paul Taylor, chief investment officer, fundamental equities, BMO Asset Management Inc. in Toronto. However, the fiscal cliff could be the “straw that broke the camel’s back” and send the Canadian economy into a recession. In that case, the sectors that will be most affected include energy, consumer discretionary and information technology.

The areas least affected, said Taylor, will be those that are more domestically biased in nature, such as telecommunications and consumer staples. “Certainly people will continue to buy at their local grocery and drug store,” he said, “regardless of economic conditions.”