The Federal Reserve is non-political and non-partisan. We all know that. But there is a very curious pattern to Fed rate increases and decreases going back more than 40 years that makes it look like the timing of changes in the discount rate works to the advantage of one political party – The Republicans – with stunning consistency.
In fact it is so consistent that coincidence or chance is just not a possible explanation.
The man who uncovered this pattern is a California-based software engineer and writer named David Brubaker. That is unfortunate, because if his findings ever become part of the political battleground, it will be easy to dismiss Brubaker as some kind of nutter.
He writes books and web posts offering a new interpretation of the Book of Revelation, and outlining a radically different approach to Biblical prophecy – not topics that Very Serious People will take seriously.
But if Brubaker is easy to lampoon, his data isn’t. What he has done is track rate changes by the Fed back to 1960, and correlate them to the presidential election cycle, and to the political party that held the presidency.
You can read the details yourself at http://davidbrubaker.info/FedIntRateChart.v3.pdf.
What he found was that during periods when the Fed’s actions would have no political consequences – after the last election, too early for the next one – they were even handed: the distribution of rate increases and decreases was about the same for each party.
But during periods when the Fed’s actions could conceivably have an economic impact that would be reflected in the election, the Fed actions consistently favored Republicans over Democrats. In every election from 1960 to 2004, when a Republican was president, the Fed lowered interest rates during that period of vulnerability; in every case where the sitting president was a Democrat, the Fed raised interest rates during that time.
Nixon, for example, was favored with one rate increase and 13 rate decreases in that period during his two terms in office, for a net reduction of 400 basis points. Carter, who followed him, had 11 rate hikes and no decreases in his single term, for a net tightening of 650 basis points during the vulnerable period. There are no exceptions to the pattern in the period Brubaker studied.
So what does it mean? Brubaker’s data end in 2004, and the conclusion he draws is that the Fed had consistently acted to aid Republicans and damage Democrats in presidential elections. That’s not a conclusion we’re willing to endorse, although his proposition may not seem so strange in Washington.
One of newly-elected President Obama’s first actions was to dump Alan Greenspan, who was popularly identified with the Republican Party, and who had been Fed Chairman for about a third of the period Brubaker studied.
But if the Fed was trying to fix the elections, it didn’t work very well; Carter defeated Ford, despite all those rate cuts, and Clinton defeated Bush I. Managing elections is obviously no easier than managing the economy.
We don’t have a dog in this fight. US presidential politics are a swamp we would rather not wade into. But it is worth noting that we are about 13 months away from a presidential election. And for the past six months the Fed has been fretting about raising rates.
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