President Trump may want FED Chairman Jerome Powell to cut interest rates next week at the FOMC meeting, but an analysis of presidential reelections since 1956 shows that such an action could be harmful for the President's reelection chances.
President Trump may want Federal Reserve Chairman Jerome Powell to cut interest rates next week at the Federal Open Market Committee meeting, but based on an analysis of presidential reelections since 1956, cutting rates—or raising them—appears to have aeffect, unless you are Paul Volcker trying to kill runaway inflation.
Out of the three elections where the incumbent lost, FED Fund rates were flat or down in two of them. In the Bush-Clinton election of 1992, FED Funds were down for 43 months before election day, and mostly down for 27 months before the 1976 Ford-Carter election. The exception was the total war that Paul Volcker waged against inflation from 1977 to 1980. For almost all of Carter’s term, FED Funds rose from 4.6% to 17.6%, and dipped only briefly around election day to 15.85%.
A better indicator may be the change in the growth rate of after-tax corporate profits. Again, since 1956, seven presidents have been reelected. For the four years before their reelection, corporate profits were mostly up. Out of 16 previous quarters, the seven presidents had on average, only 4.4 down quarters in corporate profits.
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