Will The Political Fed Launch New QE With Less Than Two Months To The Election? A Historical Perspective

Tyler Durden's picture

In two days the entire world will learn if the Fed will do away with all pretense it is not a political agency, and despite a presidential election looking in less than two months, proceed with a third historic round of easing, which according to "experts" may range from nothing (yes, some actually see no point at all to further goosing banker bonuses and the AUM of the uber-wealthy which is all QE4 will achieve), to extension of the ZIRP language, to MBS Twist, to combined purchase of USTs and Agencies, either with a deadline, or open-ended. That pretty much rounds it up. No matter what the Fed does though, the reality is that 100% of Bernanke's action, if not much more, has already been priced in, even though as we explained, Bernanke's hands may actually be quite tied due to simple structural limitations in the bond market, in which the Fed is now a 30%+ active player, and approaching 70% in the long end. Perhaps a bigger question is will Bernanke step back from the trees and notice that the forest is less than 2 months from the presidential election, in essence making the Fed's decision a political one in everyone's mind, regardless if more easing was designed to have a political impact. To answer that, we look at what the Fed has done in the past in the period of 0-2 months before US presidential elections. The result, as Credit Suisse reports, is that "More often than not the policy move inside of the two-month window prior to the election has been an extension of the prior regime." In other words, no transition from turbo-easing to hyper, mega easing. With that said, one must keep in mind that all historical precedents should really be thrown out of the window as never before in history has the Fed found itself at the Z/NIRP boundary, with a very limited arsenal of action, and with only prayer left that this time it will be different, and central planning will actually work for once.

From Credit Suisse:

The Fed in election season

When the FOMC meets next Wednesday and Thursday, it will be deliberating in the inescapable shadow of election season. In an election long characterized as a referendum on the United States’ economic outlook, the Fed’s decisions—and speculation surrounding future actions—are squarely in the political spotlight.

As pundits offer extensive interpretations of every murmur from the Fed, questions abound as to whether the Fed would even dare to act so close to Election Day. Would this purportedly independent body really want to hurl itself even deeper into the maelstrom by offering up a third round of balance sheet expansion?

Although the specific issues are largely unprecedented—balance sheet expansion has not been a prominent issue ahead of prior elections—there is plenty of precedent for Fed action ahead of a Presidential Election. While most times this represented a move in the same direction as recent policy, there are even instances where the Fed has reversed course near an election – presumably that hurdle is no more than the political hurdle for QE.

Below, we look at the Fed’s rates decisions between September and November of an election year. Looking back at the last 15 elections, we use discount rate, and, where available, the Fed Funds target rate as the proxy for the Fed easing, tightening or standing pat.

An action of tighten represents rising rates, ease indicates rate cuts and nothing is in the situations during which the Fed left rates unchanged. More often than not the policy move inside of the two-month window prior to the election has been an extension of the prior regime.

Action prior to election season refers to the monetary policy environment in the months leading up to September of the election year. Any rate change during election season— September through Election Day—falls under the classification of action during election season. Finally, to determine whether or not the Fed may have waited for the election to pass before moving to a new policy regime, we look at the Fed’s action following the election.

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Sudden Debt's picture

And Obama came down from the heavens and dropped to his knees in front of the FED and cried like a baby so they would print money so all his masters could swim in endless amounts of money.

and once he completed his task, he went back to his White ivory tower and looked down onto his servs smiling and said "THIS IS ALL MINE AGAIN FOR THE NEXT 4 YEARS!!!! WHOEHAHAHAHAHAHA!!!!"

malikai's picture

O/T, but here's why ZH's ads are killing requests right now. Not to mention thousands of Godaddy DNS and hosting clients:


Apparently, Anonymous is attacking them and bringing us all down with it.

strannick's picture

"That pretty much rounds it up"

-Dont forget decreasing interest on funds Primary Dealer banks hold at the Fed. That could really get some $$ slooshing around

donsluck's picture

That won't happen as it would drive some banks not only secretly insolvent but into negative cash flow. Nope, we're now stuck, treading water until the next "disaster" provides cover for the next change.

LMAOLORI's picture


+1 of course the Fed will print it's gotten to the point of sheer nonsense the Fed was put in place by politicians and it can be taken out by politicians the trouble is finding politicians who aren't paid off and who would be willing to do that. There was a reason the banks bought obama no prosecutions to name one and there was a reason the democrats don't want the Fed. audited. Any money given to romney right now by the banks is just to hedge their bets in case of a populist uprising (blankfein and dimon are life long democrats & still support obama). Keep in mind it was part of the Republican platform to audit the Fed and he said he would get rid of romney.  A gold standard was/is being discussed by the right now another reason the Fed would like to see obama get back in. In addition the Fed doesn't give a crap if your food, gas prices rise.  They don't count as inflation in the measurements the Fed uses.  As far as obama he knows his peeps will vote for him irregardless the democrats said once you vote black you never go back.  The one obama didn't really have any control over was the ECB but he begged them none the less to save his election and his Socialist/Communist brother in arms obliged and so will the Fabian Socialist Fed. who is already using Marx's techniques.  Wall St. & Obama or the people I think the Fed has shown who it values and it's not YOU.


Wall Street slips before Fed, tech sector weighs

Fed Watch: Did the Republicans Force Bernanke's Hand?

Guess Which President Has Been Best for Stocks?

Rising Market Means Obama Wins



OpenEyes's picture

And I come here every day hoping to get the "meh" girl ad!


RSloane's picture

The Fed, and specifically the Fed chair, would NEVER use their policies nor actions in an attempt to influence an election or change sentiment! My unicorn told me this just the other day.

boogerbently's picture

Would another QE make BO look :

Good, because the market is rosy.


Bad, because it is an irresponsible devaluation of the dollar and an added tax burden.

Dareconomics's picture

This is my take on the Fed:


The Fed will print 'til failure, because if the music is playing, Uncle Ben's gotta get up and dance.

hannah's picture

oppan gangnam style ....!...ben's the gay beeeetch yallll.

ebworthen's picture

I doubt they announce QE; Ben is going to keep that arrow in his quiver until the S&P takes a crap at some point in the next year as unemployment worsens and the jawboning and MSM propaganda loses it's placebo efficacy.

Besides, they can continue the twist and under the table easing to banks and currency swaps ad infinitum without having to "announce" anything.

A Man without Qualities's picture

I'm with you.  Firstly, will it create jobs?  No chance.  Will it increase the cost of living?  Yes.

Does Obama want more QE? Probably not.

Obama needs a bouyant market to help raise campaign funds, but he needs low food and energy costs to win the election.  Actually, on that note, Romney is such a muppet he would manage to lose the election no matter what the situation was, since we don't have in income weighted voting system.

What we have seen is that the threat of QE is more useful than the actual program as it gives the excuse to ramp the markets.

Why are all the banks so confident it wil happen?  They are supporting Draghi and trying to create a post ECB bounce so the markets learn not to fight the ECB....

boogerbently's picture

QE was designed to lift the markets so everyones pensions and retirements survive.

We are now at the TOP of the market.

Ben will wait and see how the EUrocure affects us, possibly China will "ease".

It's someone elses turn!

We can certainly wait to see how the German "constitutionality" vote goes. (tomorrow)

Assetman's picture

If the Fed DOES NOT do QE:

Much weaker global PMI's will show up in earnings results, making for a potential of significant earnings misses for companies almost across the board.  Volatility spikes off artificially low levels and the market tanks weeks before the November election.  The Fed would look VERY political if they were to make a move in October-- despite the necessity of making the move.  It's the RIGHT move to keep the arrow in the quiver.  Its the WRONG move if Bernanke wants to keep his job past 2014.

The Fed DOES further QE:

Weaker global PMI's will still show up in finanical results in October, but the promise of QE morphine will continue to levitate markets on very low volatility.  Market-based inflation expectations, already at 1 year highs-- will go even higher.  Global commodity prices, including gold and oil, will soar-- prompting drastic actions in some 3rd world economies.  Eventually, Bernanke's prized TBTF financial firms get squeezed by both lower net interest margins-- and much lower trading activity.

The Fed pulls a DRAGHI:

By that, the Fed talks a tough book on QE (by suggesting open-ended asset purchases)-- but does ABSOLUTELY NOTHING with the balance sheet, save sterilized purchses under continued Twist operations.  Market stays elevated under low volatility, inflation expectations rise-- but not as much as some suspect-- and enough time is bought so that Obama can squeeze victory from the jaws of defeat.

The other point is that the Fed can actually EXPAND its balance sheet by doing Euro/Dollar swaps-- since it now has the open-ended authority to do so.  I'm beginning to wonder myself whether this hasn't been already happening on a fairly large scale.  It would explain a good chunk of Euro-strength (which doesn't make sense in the context of the OMT) and the recent plunge of volatility. 

fonzannoon's picture

"With the election being less than two months away, we do not feel it would be prudent to take any action today, that could be construed as having a political agenda" With that said at the conclusion of the election, regardless of who is the next President, we will unveil a comprehensive plan that we have agreed to. While we would have enacted it at this meeting, we feel it better served to have this program assist the next President, regardless of which party is in office"

- Ben Berstanky


Conman's picture

Doesn't matter. Anything market negative is priced-in whereas anything market positive is front-ran, and ramped up to infinity and beyond.

rodocostarica's picture

They will just extend ZIRP. Which of course just extends my gold holding horizon. Who feels better with gold versus negative interest on bonds versus inflation? I do and most of you I imagine.

Bay of Pigs's picture

The FED doesn't need to announce anything. They can print and dish out the back door 24/7 right now. (see the hidden $11T in 2008/9)


hannah's picture

the market is up becaue ben is printing. he never stopped printing..........

boogerbently's picture

More than half the benefit comes from the "announcement".

tttan's picture

So far the last 3 QE, Jan 2009, Aug 2010 and twist 2011 were done when stock market was down. After 3 QE the budget deficit has gone higher by more than 3 trillion. Bernanke has clearly failed Math 101 and Economic 101 and most likely politic 101. Risk asset is at 5 yr high while global economy is at weakest point. Somebody is holding the stock market up ( maybe PPT) because stock was down 40% in aug 2007 to election time Nov 2008. Perhaps democrats know they need to keep the stock market up to help in the election.

Winston Churchill's picture

I don't think enen Uncle Ben can justify QE at this point.

There is a perfect storm brewing up right now with the fiscal cliff,debt limit,and

the Europonzi problems.He will hint ,and keep whatever powder he has left.

dry, for later on.

yogibear's picture

The Fed is already doing QE3.



Federal Reserve has already started QE3, says investor Jim Rogers Veteran US investor Jim Rogers believes the Federal Reserve has already launched a third round of quantitative easing, despite chairman Ben Bernanke failing to mention stimulus measures in his Jackson Hole speech last week.


Mr Rogers, who co-founded the Quantum Fund with George Soros, believes that America's central bank is secretly printing money to avoid "getting egg on their face again" after previous attempts to kickstart the faltering economy with $2 trillion of QE failed.

"I do not know if they [the Fed] will announce it," he told India's Economic Times. "I know they are going to print more money. They already are. If you look at their balance sheets, you will see that something is happening, assets are building on their balance sheets and they are not coming from the tooth fairy.



Robot Traders Mom's picture

I really don't think the Fed cares who is President.


Whoever wins will be their puppet...

fattail's picture

Possible.  my theory is romney is their preferencd as he can run interference on the anti-fed wing of the red party, and provides the added bonus of need ing wall street money in 4 years for reelection.  also, he is already a wall street stooge no need to convince him of the next bailout.  the rubber stamp is ready.

B2u's picture

Bernanke can't help throwing money out the window.  He has been doing it since childhood.


ekm's picture

There is no cocainated easing 3, 4, or 5 or 6 or 7, unless 1 or 2 primary dealers collapse in order to release assets in the private market.

Not much left to buy.

Crude oil is in hyperinflation.


No QE. Period, not until crude at $60 or below.

Meesohaawnee's picture

dead on. !! qe is not gonna happen. Notice how the MSM is all hush what crude is. at least thats why i have not head.

ekm's picture

It's possible though, that a state owned russian or chinese counterparty demands payments of CDSs from primary dealers otherwise................Russia attacks the country of Georgia again.

There is a small % probability that such a repeat of 2008 may happen, when US Treasury was telling China and Russia to take a loss on fannie and freddie bonds they owned. The only and single point of QEs is to provide primary dealers with cash to pay for losses on CDSs, in my opinion.



buzzsaw99's picture

the bernank will do what the joo york fed tells him to do

Shizzmoney's picture

QE3/QE4 will happen in Jan 2013.

Stocks will crash shortly thereafter.

hannah's picture

the market will crash at 10:04am on feb 21, 2013....

russwinter's picture

Fed Twisted into a Knot, more commentary on the UBS holdings chart ZH post late last week:


Bastiat009's picture

QE, no QE ... the problem with this economy is that too many people are being paid to produce nothing like all those "papers" explaining why QE will happen or not happen ... or maybe or now or later ... 

Squid Vicious's picture

Any higher gasoline prices will surely cripple the "recovery"... the bernanke is in a real jam, but my guess is the banksters will win, more free money yay!

Assetman's picture

At some point, the ZIRP + balance sheet expansion works against the banks, as narrower net interest margins and lower volumes in equity and fixed income trading hit the TBTF profit centers.

Given how volatility has virtually collaped over the past few weeks, it's not going to be all the surprising to see the TBTF's say 'enough'.

My guess is that the Fed will talk a very aggressive QE book (including adopting open-ended purchases towards nominal GDP targeting)-- but they will actually DO NOTHING.   The first action will keep the markets boyant-- and latter will ensure that inflation doesn't become an issue before the elections.

It's going to be balancing act, but I think the Fed will actually buy Obama enough time until November with the slight-of-hand actions.

And if I were Romney, I would cry 'political interference' no matter what actions are taken by the Fed.

Conax's picture

When your only tool is a hammer, every problem looks like a nail.

But what if every nail has been hammered in and the boards are still falling off the shack?  Now you just look silly out there, monkey-hammering everything in sight.

No announced QE; the equities are too high, and gas prices will go ballistic.

Siegfried's picture

Bernanke cannot make quantitative easing, near the elections. How to imagine, indeed, that the voters are going to vote for oblabla if the barrel of oil jumps up with $10 further to the announcement of a QE3?

andrewp111's picture

Bernanke will drop IOR to zero (or even negative) in order to force banks to start lending. He does not care about being seen as political. Romney promised not to reappoint Bernanke, so The Bernank has nothing to lose by going all-in for Obama.

Siegfried's picture

Yes you are right, but if all the assets climb in arrow and what everything is more expensive the economic agents will not reelect Obama...

Bicycle Repairman's picture

If the Banks need printing on October 15, it's happening.  Obama and Romney do not count all that much more than John Q. Public to the banks.

TrulyBelieving's picture

They'll do it and it won't work. What else is new?

LMAOLORI's picture



obama doesn't care about gas prices except in front of an audience trying to get re-elected then he fakes it, in reality he wants higher gas prices gloBULL warming and all.

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