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Tyler Cowen

Sorry, Trump, Fed Policy Actually Favors You

The Republican accuses the central bank of goosing the economy to help Clinton. That’s backward.
A little political.

A little political.

Photographer: SAUL LOEB/AFP/Getty Images

As Donald Trump charges that the election is being rigged, let’s consider one of his claims: that Janet Yellen and the Federal Reserve are keeping the economy artificially strong to benefit the candidacy of Hillary Clinton. While Trump is correct that the Federal Reserve system is subject to some political influence, the rest he gets mostly backwards. If anything, Fed monetary policy has weakened the electoral prospects of the Democratic Party since the financial crisis.

Economic research on “political business cycle theory” asks whether the central bank times its stimulatory actions to boost the reelection prospects of incumbents, typically by creating a pronounced upswing coming into November. It is well known, for instance, that in the early 1970s, President Richard Nixon pressured Fed Chairman Arthur Burns to goose up the money supply. But since then, it is less clear what general pattern holds, and in 2008, economic policymakers could not stop a crumbling economy from hurting the chances of John McCain, the presidential candidate of the incumbent Republican Party.