The Federal Reserve’s monetary policy committee began a two-day meeting today. By tomorrow, it’s expected to present the meeting results, which could include a new plan to strengthen the flagging economy.
One strategy it could use to jolt the anemic economy is quantitative easing - or increasing the money supply in the market by purchasing assets like government bonds. The extra cash, which is siphoned into banks, makes it easier for financial institutions to lend money to consumers and businesses.
At Delve, we’re guessing both Mitt Romney and President Obama will be tracking the outcome of this meeting closely. That’s because the Fed’s policy has the potential to significantly change the economic situation in the U.S. – and, of course, the economy is this election’s biggest issue. Delve asked Sam Sherraden, the associate program director of New America’s Economic Growth Program, to break down what the Fed’s potential policy proposals tomorrow could mean for the President Obama and Mitt Romney’s election chances.
“If the Fed eases and the economy gets better, Obama will benefit,” Sherraden explains. “But Fed easing will be difficult because Democrats have not vigorously defended Fed action to date or laid the political support for further easing. The lack of support from Democrats was evident in Chairman Bernanke’s recent testimony before the Joint Economic Committee. Romney and other Republicans, however, have made Federal Reserve policy part of a broader political debate about the limits of government intervention in the economy. If the Fed eases and the economy gets worse or doesn’t improve enough, it will hurt Obama and become a winning campaign issue for Romney.”
More bad news for President Obama: “If the Fed decides to do nothing in its meeting tomorrow, it is almost certainly negative for Obama because asset prices are more likely to fall and the economy is more likely to do worse before the election,” Sherraden says.
Want to learn more about the Federal Reserve’s influence on this election? Delve is planning an event on July 10 that will consider the central bank’s increasingly politicized position, and Federal Reserve Chairman Ben Bernanke’s role as President Obama’s quasi-running mate. Stay tuned for more details.
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