Many investors often ask whether the US election will affect the Fed’s monetary policy decisions. For our experts, Matt Hornbach (fixed income strategist) and Seth Carpenter (global macro), the answer is clear: absolutely no.
- The Fed is an independent body. First, the Fed has demonstrated throughout its history that it is an independent institution. In fact, Seth was part of the FOMC during the elections of 2000, 2004, 2008, and 2012, and there was no case where the decision was affected by the election. Likewise, on other occasions, when Powell has been asked about the issue, he has assured that he will do what he thinks is right for the economy, regardless of politics. And if that’s not enough, after analyzing all Fed decisions since 1971, they found no evidence of any kind, which shows that the governor does not dare change the monetary policy in the middle of the election.
- There is no incentive to change the course of policy. Second, even if the Fed were biased by the current president (which is not the case), there would be no effect on monetary policy since, on this occasion, both parties are interested in reducing inflation to the target level to avoid entering a recession.
- There is no evidence of any interaction with Minute. Third, they analyzed Fed minutes for election years from 1990 to 2018 and concluded that although FOMC members are aware of the common belief that elections can interfere with monetary policy decisions, they reject it and do not consider it relevant to their deliberations. However, they often discuss the uncertainty that the election raises in consumption and business activity and emphasize that although recessions reduce the importance of elections, fiscal policy focuses on them. So, data, not elections, affect monetary policy decisions.
That said, Seth maintained that the Fed will lower rates for the first time in June and then at each meeting from September to December.