Fed Should Ignore Electoral Calendars and Focus on Economy

The US Federal Reserve is under pressure to make a rate decision that will appease President Donald Trump, but some experts warn that playing politics could undermine the central bank's independence.

Kenneth Rogoff, a Harvard economist and former Federal Reserve official, suggested that the Fed should delay its rate decision until after the midterm elections in November. However, this strategy is not without risks, as it may embolden Trump to demand even more control over Fed policy.

Rogoff's suggestion is based on his own research, which shows that central bank credibility matters. He argues that if the head of the central bank is seen as being averse to inflation, it can lower expected and actual inflation. However, this model did not contemplate a president threatening to fire the Fed chair or actively trying to remove Fed governors.

A study by the author shows that there is no evidence that the Fed's decisions are affected by the timing of American elections. In fact, the Fed has hiked its policy rate days before midterms and cut rates before presidential elections in the past.