Right-wing media figures are claiming that the Federal Reserve is trying to boost President Obama's reelection chances by taking new measures -- commonly referred to as quantitative easing -- to stimulate the economy and boost employment. In fact, the Fed regularly acts in the months before a presidential election, and economists have argued that current economic conditions warrant additional stimulus.
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Fed Announced Additional Monetary Stimulus To Boost Employment, Economic Growth
CNN: "The Federal Reserve Announced Plans To Unleash More Stimulus." A September 13 CNNMoney article reported that the Fed announced a new stimulus effort aimed at boosting employment and economic growth:
The Federal Reserve announced plans to unleash more stimulus Thursday, in its third attempt at a controversial program to rev up the U.S. economy.
The policy, known as quantitative easing and often abbreviated as QE3, entails buying $40 billion in mortgage-backed securities each month. The end date remains up in the air, as the Fed will re-evaluate the strength of the economy in coming months. [CNNMoney, 9/13/12]
Right-Wing Media Claim Fed Stimulus "Designed To Revive Obama's Election Chances"
Rush Limbaugh: Fed Stimulus "Is Not Designed To Revive The Economy; This Is Designed To Revive Obama's Election Chances." Rush Limbaugh claimed on his radio show that the Fed's stimulus "will create the illusion that things are working with, what, 55 days before the election. That's all this is." He added: "This is not designed to revive the economy; this is designed to revive Obama's election chances. That's all this is." Limbaugh also claimed that the Fed will continue to "purchase these assets until the outlook for Obama's job improves is what they really mean. It's his job they're worried about." [Premiere Radio Networks, The Rush Limbaugh Show, 9/13/12]
Drudge Report: "Election Manipulation: New Pumping Begins!!" The Drudge Report linked to a CNBC article about the Fed's stimulus using the headline, "Election Manipulation: New Pumping Begins!!" From the Drudge Report:
[Drudge Report, 9/13/12]
Fox's Dagen McDowell: Fed Stimulus Is "A Big Fat Campaign Contribution To Mr. Barack Obama By Ben Bernanke." On Fox News' Cavuto on Business, Fox News' Dagen McDowell said that the Fed's stimulus is "a big fat campaign contribution to Mr. Barack Obama by Ben Bernanke," the Federal Reserve chairman. Host Neil Cavuto also suggested Bernanke was doing a favor for Obama by announcing the Fed stimulus this close to the election:
DAGEN MCDOWELL: To paraphrase the Wall Street Journal, this was a big fat campaign contribution to Mr. Barack Obama by Ben Bernanke, and boy did he try and separate himself from the politics of this. Talked about it in the press conference this past week, saying it's only about the economy, but you look at how that market reacted the day of this announcement.
They -- the Federal Reserve could have waited. As well telegraphed as this has been, they could have just changed the date that interest rates would stay at zero and not done anything else, wait until after the November elections, but he decided not to, and hallelujah, the White House is celebrating.
CAVUTO: Does it have anything to do -- Mitt Romney's already made clear he would not replace Ben Bernanke with Ben Bernanke, he wants someone else, and he's said this through the primary campaign. The president has been very supportive of Bernanke, and I'm just wondering whether this is Bernanke's way of saying I remember what you said, Governor, and I remember what you've done, Mr. President. [Fox News, Cavuto on Business, 9/15/12]
Fox & Friends Co-Hosts Suggested That Fed Easing Was A Political, Not Economic, Decision. On Fox & Friends, co-host Gretchen Carlson asked whether the Fed easing was "an election, kind of a political" decision, while co-host Steve Doocy suggested that Bernanke had announced new stimulus because he feared for his job. Doocy stated: "And the thing about Bernanke is, he's -- I'm sure he's got a television in his office, he's heard that Mitt Romney has said that if elected, Mitt Romney would fire Ben Bernanke and that's not good for him." [Fox News, Fox & Friends, 9/17/12]
Economists: Fed Had "Plenty Of Justification To Act"
Michael Woodford: "What [The Fed] Did Is Definitely A Step In The Right Direction." In an interview with The Washington Post's Dylan Matthews, monetary economist and Columbia University professor Michael Woodford said of the Fed's decision, "I personally would have gone further but I think what [the Fed] did is definitely a step in the right direction." [The Washington Post, 9/15/12]
Dean Baker: The Fed "Should Have Taken A Step Like QE3 Months Ago." Economist Dean Baker, the co-director of the Center for Economic and Policy Research, explained to Media Matters that the Fed "should have taken a step like [its new stimulus] months ago":
The Fed has a dual mandate, it is supposed to promote price stability and full employment. There is zero issue of inflation, there is no evidence of inflation rising, except for a few commodities whose price is determined by world markets, not Fed actions.
By contrast, the economy is well below full employment. This means that the Fed should be doing everything it can to try to promote full employment. It should have taken a step like QE3 months ago. Its delay needlessly slowed the economy and job creation. [Statement to Media Matters, 9/17/12]
Tim Duy: Fed Had "Plenty Of Justification To Act." Ten days before the Fed's announcement, University of Oregon economist Tim Duy looked at data regarding the labor market and inflation and concluded that economic conditions were "providing the Fed with plenty of justification to act." Duy added, "Of course, that was the case three meetings ago," which was a reference to the Fed's Federal Open Market Committee meetings that take place every six weeks and focus on monetary policy. [Fed Watch, 9/3/12]
AEI Economist Stephen Oliner: "I Agree With Those Who Say The Fed Should Do More." Stephen Oliner, a resident scholar at the conservative American Enterprise Institute and former Fed economist, wrote in July, "I agree with those who say the Fed should do more":
All eyes are on the Fed today, as the Federal Open Market Committee (FOMC) concludes its fifth policy meeting of the year. Expectations are running high for further easing at this meeting to support the anemic economy. Some Fed-watchers expect the FOMC to announce a new asset-purchase program, the most aggressive option on the table.
No matter what the FOMC does, it will be criticized in some quarters. If it chooses not to undertake a new round of asset purchases, commentators on the left again will lambast the Fed for doing too little to bring down unemployment. At the same time, conservative economists have criticized the Fed for venturing too far down the path of unconventional policies, and they fear that the Fed's asset purchases have greatly increased the risk of future inflation. A further expansion of the Fed's balance sheet will only stoke their ire.
I agree with those who say the Fed should do more. The Fed has a dual mandate to promote price stability and full employment. But in responding to the financial crisis, the FOMC has shown little appetite for an amount of stimulus that would push inflation above its target rate of 2 percent, even temporarily. Indeed, Chairman Bernanke has called the idea "reckless". The FOMC has been unwilling to exploit the short-term trade-off between inflation and unemployment permitted by the dual mandate. [American Enterprise Institute, 7/31/12]
There Is "Plenty Of Precedent" For Fed Action In An Election Year
NY Times: "Fed Has Announced Policy Changes In September Or October During 10 Of The Last 15 Presidential Election Years." In an article headlined "Economic Stimulus as the Election Nears? It's Been Done Before," The New York Times reported that "[w]hile some analysts have argued that the Fed is less likely to act in an election year, history offers evidence to the contrary." He continued, "The Fed has announced policy changes in September or October during 10 of the last 15 presidential election years, dating back to 1952. During the last presidential election, the Fed slashed interest rates repeatedly as it responded to the financial crisis. In 2004, the Fed raised rates in June, August and September." [The New York Times, 9/11/12]
Credit Suisse: "There Is Plenty Of Precedent For Fed Action Ahead Of A Presidential Election." In a research note examining the Fed's history of acting in an election year, Swiss financial services group Credit Suisse said that "there is plenty of precedent for Fed action ahead of a Presidential Election." [Credit Suisse, 9/7/12]
Economists: If Fed Wanted To Help Obama, It Should Have Acted Months Ago
Baker: "If Bernanke Was Trying To Help Obama, He Should Have Moved Months Ago." Baker added in his statement to Media Matters, "As a practical matter, the latest action will have at most a trivial effect by November. If Bernanke was trying to help Obama, he should have moved months ago." [Statement to Media Matters, 9/17/12]
Daniel Altman: "Some People, Especially Certain Presidential Incumbents Running For Reelection, Would Have Liked To See This Happen Earlier." Daniel Altman, an economist at New York University's Stern School of Business and the chief economist at Big Think, wrote that the only way the Fed's actions could boost Obama's reelection chances in the short term is "through the spike in the stock market that followed the Fed's announcement." He added that "rising markets don't necessarily translate into higher consumption and new jobs." [Foreign Policy, 9/17/12]
Joseph Gagnon: Fed Program Will Likely Take Six Months To Affect Unemployment And Growth. Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics and a former top economist at the Federal Reserve, told The Washington Post that it will likely take about six months for the Fed's stimulus to affect unemployment and growth. From The Washington Post:
According to Joseph Gagnon, a fellow at the Peterson Institute for International Economics, it will most likely take about six months before the Fed's new stimulus program has any noticeable effect on unemployment and growth.
Gagnon bases that estimate on a 2009 study by Jean Boivin, Michael Kiley and Frederic Mishkin, which found that central bank actions tend to start influencing economic growth about six months after they're announced, on average, while their effects dwindle after about two years. Occasionally, central bank actions can take effect more rapidly -- in the aftermath of the 1992 financial crisis in Sweden, the Sveriges Riksbank managed to depreciate the currency 20 percent and boost the country's economic fortunes fairly quickly.
Add it all up, and it's unlikely that QE3 will sway the presidential election this fall. The stock market will rise and economic confidence might go up. But unemployment and economic growth likely won't get an extra lift until early next year. If Bernanke had wanted to assist President Obama's reelection campaign, he should have announced this program six months ago. [The Washington Post, 9/14/12]