US: Fed and the Presidential Election – Goldman Sachs

By FXStreet Alec Phillips, Research Analyst at Goldman Sachs, suggests that despite frequent suggestions from market participants that the upcoming presidential election could be an obstacle to the resumption of rate hikes later this year, we find little evidence of a relationship between the timing of presidential elections and Fed policy.

Key Quotes

“Going back to the 1964 election, policy actions in election years appear balanced about evenly between rate hikes and rate cuts. We also identify several instances of easing or hiking cycles that start in Presidential election years. While major changes in policy appear to be slightly less common in the meeting immediately before the presidential election, there is some precedent for that as well.

More importantly, there is little evidence to suggest that presidential elections cause the Fed to deviate from its normal pattern. To test this, we look at the gap between the actual funds rate and the rate implied by a Taylor rule. While the results hint that rates may have been lower than warranted ahead of presidential elections several decades ago, since the 1980s there is no sign of any change of behavior in election years.”
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Source:: FX Street