Election Year Hikes: TD Securities Says Data Drives Federal Reserve Decisions

TD Securities strategists argue that Federal Reserve decisions in election years are driven by data rather than politics. Despite common assumptions, the Fed's actions in election years do not differ significantly from those in non-election years.

The strategists point out that only a small difference exists between the frequency of rate hikes or cuts during election and non-election years. Furthermore, they note that 70% of meetings held closest to Election Day resulted in a hold, while 30% led to either a hike or cut.

TD Securities warns that if the Fed chooses not to raise rates due to political concerns, it could push long-end rates and inflation swaps higher. This is particularly true if markets continue to price in nearly a full rate hike by the October meeting without further guidance from the Fed.

If investors believe the Fed's decision to hold off on raising rates was driven by politics rather than data, this could lead to concerns about labor market reacceleration and potentially higher inflation.