Political impact of FOMC statement and Bernanke Q&A


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The day after Barack Obama's official 2012 campaign kick off event, er I mean State of the Union address, the Federal reserve will be releasing the FOMC interest rate accompanied by the all important statement and a Ben Bernanke press conference. The FOMC interest rate and statement will be released at 11:30am CST and the Bernanke press conference will be at 1:15pm CST.

It has become clear that the Fed does not believe that there is the political will at this time to implement an all out QE3 in the form of large asset purchases. And with the equities markets still near the highs of last spring and summer, the street consensus is that the Fed is likely to save what bullets they have left for the more desperate times ahead in the markets.

Zero Hedge had an interesting argument yesterday that essentially stated that the only dovish move by the Fed that would rally the markets at this point is a dovish surprise. I think that is a valid point but I also believe that the timing of the surprise is the all important component in a political election year. While the political boost for Obama from a dovish Fed statement tomorrow would be a nice little gift for the Obama administration, it would not pack quite the wallop a similar statement could in say September or October.

Looking at the Federal Reserve's FOMC meeting schedule for the rest of the year one meeting looms politically large, the meeting on October 23-24 (September 12th a close second). This meeting takes place just two weeks before the November 6th Presidential election. A Fed decides to make a dovish move at this meeting, thereby rallying the markets just weeks before the election, there is no question it would have a psychological effect on voters in favor of the Obama administration.

It is worth remembering that Obama was not the inevitable winner in the 2008 campaign until Lehman was allowed to collapse by Henry Paulson and company at the US Treasury. McCain was cast as the continuation of such pain (Bush term three) and it was curtains within days of the crash for McCain, he never recovered. Now just imagine the GOP nominee campaigning all summer on having the plan to turn around the economy via free market economics and then BOOM! the Fed serves up a nice thick brick of hopium to the Obama addicts and before you can say "hope and change" Obama is standing in a stadium in Ohio proclaiming, "Hope has returned to America!" The GOP nominee would be left trying to explain the finer points of monetary policy to the national voting public with just weeks or days to make the case while the country is bathing in mountains of freshly printed cash.

The language in the last FOMC statement solidified the fact that the Fed will not be raising interest rates until at least 2013. which is certainly a politically convenient timetable for the Obama administration. I will be interesting to see if this language stays in the statement or becomes an assumption of the markets.

Either way the Bernanke press conference tomorrow will set the tone for the fiscal year ahead.

Additional Reading:

All the Devils Are Here: The Hidden History of the Financial Crisis

Currency Wars: The Making of the Next Global Crisis

The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: "On Robustness and Fragility" by Nassim Taleb

Filed Under: EconomicsFeatured

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About the Author: Shaun Booth is editor of MilwaukeeStory.com.

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  1. glen says:

    It makes me sick to think that what you talked about could actually happen, all we can do is try to let other people know so when it happens it is obvious what is going on to everybody.

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