Do Elections Sway Fed Moves?

Apparently only in their timing

Will the fact that 1996 is a Presidential election year affect Federal Reserve policy in the months ahead? According to Wall Street lore, the Fed tends to resist making policy changes during election years. Many observers also think it is less likely to tighten in such years.

The Fed's track record proves otherwise. Since 1972, reports economist John Youngdahl of Goldman Sachs & Co., the Fed on average has actually made somewhat more policy shifts in election years than in other years. And tightening moves were also more common--probably because economic growth in election years was quite strong.

Youngdahl did find, however, that policy shifts were far less frequent in September and October (and more frequent in November and December) than in other years--indicating that the Fed tends to defer moves as elections approach until after the votes are counted.

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