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Comment: FOMC meetings close to Election Day more subject to political perceptions

No matter what the FOMC decides at the October 29-30 meeting, it will be viewed through a political lens. Even though 2019 is not a mid-term or Presidential election year, the proximity to Election Day on November 5 could amplify that.

There is a perception that the FOMC is not inclined to take rate actions close to an Election Day in the US, especially in even years that have mid-term or Presidential elections. The thought is that Fed policymakers want to avoid the appearance that monetary policy is being implemented to influence election results.  There’s probably an element of truth in this, although it is more happenstance than deliberate since the FOMC does meet 8 times a year and it can’t avoid every inconvenient neighboring event.

This perception mostly applies to meetings before Election Day where an action might be thought to help or hurt a specific candidate. Since decisions are generally made at regularly scheduled meetings absent some compelling reason for an intermeeting action in the days beforehand, it is harder to make the case that an FOMC decision was withheld to help or hurt the result.  In spite of the Federal Reserve’s fierce defense of its independence and adherence to the dual mandate, the idea of a partisan decision by the FOMC is always floated.

What a review of history tells me is that although the FOMC rarely takes action close to Election Day, but, again, this is mostly a matter of circumstance, not avoidance of political considerations.

In those relatively rare instances when a rate decision is made close to Election Day, it is usually part of a series of rate changes that were already underway such as the 2004-2005 period, or a response to exogenous events like the September 11 attacks in 2001 or the worsening of the credit crunch in 2007 or deepening recession in 2008.

The perception is a holdover from the timing of meetings that took place in the years before around 2005. Because the meeting – and rate action, if there was one – came after the election, it was interpreted as intentional. Since around 2006, most FOMC meetings in the late October/early November timeframe have arrived before Election day or have overlapped the Tuesday of Election Day. Outside of the period of the financial crisis and Great Recession, the FOMC has taken no actions at these meetings, largely because the Fed was on hold for policy for 2009-2015, and only moving slowly and incrementally in 2016-2019, at least until the two rate cuts of July 31 and September 18.

The FOMC often takes Election Day into account by moving the normal Tuesday-Wednesday meeting to Wednesday-Thursday as it will in 2020 when the Committee will meet on November 4-5.

In 2019, the Federal Reserve is facing a lot of political pressure to lower rates – and dramatically. Fed policymakers have pushed back with declarations that an independent central bank will set rates according to data and developments. The problem is that the present economic data is soft enough that an argument can be made that another rate cut is warranted. If policymakers make that determination at the October 29-30 meeting, it will be cast as bowing to political influence whether accurate or not. It is a no-win situation in which the best Chair Powell can do in his post-meeting press briefing is present the FOMC’s reasons and reiterate the Fed’s dedication to achieving the dual mandate.

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