Election Could Delay Fed Rate Rise to December
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WASHINGTON
(Reuters) - The Federal Reserve may be hesitant to raise interest rates
ahead of the U.S. election in November, although there is no hard
evidence to support the widely held view that politics influences
monetary policy.
The Fed has raised rates in election years, as well as leaving them
on hold or cutting. As a result, there is no pattern to confirm the
strong sense that the central bank prefers to hold fire as Americans go
to the polls.
Nonetheless, economists say the case for rate increases would have to be particularly convincing for the Fed to act.
"The Fed will want to be as low-key and invisible as possible and
that means the Fed will not want to change the funds rate ahead of the
election," said William Poole, who retired in March as president of the
St. Louis Federal Reserve Bank after a decade on the Fed's rate-setting
committee.
"But I believe that if there is a compelling case, the Fed will do
so," he said. "I do not believe the Fed will abstain from necessary
policy action because of the election."
Some see political calculations delaying Fed action until after the
November 4 presidential election to the central bank's first post-vote
policy meeting on December 16.
"We're facing an election, and the Fed usually tries to stay on the
sideline," said Henry Kaufman, a veteran observer of the U.S. economy
and former chief economist with Salomon Brothers in the 1970s and 1980s.
"I doubt whether the Federal Reserve will, as it is now structured,
have the strength within its voting power to say we're going to go up
50 basis points, 50 basis points, 50 basis points," Kaufman told
Reuters earlier this month, referring to the possibility of a series of
half-percent point moves.
Interest rate decisions are subject to a vote by members of the
Federal Open Market Committee. The ballot is split between the
presidentially appointed members of the Fed's Board of Governors in
Washington and five of the 12 regional Federal Reserve bank presidents.
BLAME GAME
Insiders deny politics influences their decisions. But there is no
doubt moving rates in an election year can make the Fed either hero or
goat from a political perspective, earning the ire of the party that
feels central bank action -- or inaction -- cost it votes.
Former President George H.W. Bush famously blamed then-Fed Chairman
Alan Greenspan for not lowering rates more aggressively as he
campaigned for re-election in 1992.
That was the year in which "It's the economy, stupid" became Bill Clinton's winning slogan.
"I think that if the interest rates had been lowered more
dramatically, that I would have been re-elected president because the
recovery that we were in would have been more visible," Bush told
British interviewer David Frost in an interview aired in 1998
"I reappointed him, and he disappointed me."
