Apolitical Fed ?

click for a much larger pop up chart

Interesting Fed piece out yesterday from the NYT before the rate announcement. (I wonder how many people overlooked it, choosing to shovel snow instead). Here’s the most relevant excerpt:

Most economists dismiss such complaints of political favoritism. But the Fed is not totally above the fray. Indeed, there seems to be one clear political pattern in interest-rate decisions – one particularly relevant to today’s circumstances. Precisely because of the potential impact of changes in monetary policy, the Fed tries not to start raising interest rates in the months before a presidential election.

“The Fed considers itself apolitical, but that does not mean ignoring politics; rather, it means trying to avoid becoming a political issue itself,” said Laurence H. Meyer, a former Fed governor who advises investors on monetary policy. “It tries to do this by avoiding actions that are unnecessarily provocative.”

This year, avoiding provocation could be awkward. With the economy perking up and interest rates at historic lows, there is little doubt that the Fed’s next move will be to raise rates, for the first time since May 2000.

But when? Starting to raise rates in September, at the last meeting of the Federal Open Markets Committee before the election, could be seen as a slap at President Bush. Raising rates at the November meeting, a week after the election, might elicit charges that the Fed waited to avoid harming Mr. Bush’s electoral chances by putting the brakes on the economy. The committee meets again in December, but few economists expect sharp policy changes in a month when financial market activity traditionally tails off.

Good stuff; Be sure to check out the pop up historical chart above.

On Presidential Politics, the Fed Walks a Tight Rope
NYTimes, January 28, 2004

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