When we were in college, a competing student paper ran into trouble paying its bills. Our paper, which was notorious for its outlandishly reactionary viewpoint, offered to financially bail out the other if it would modify its editorial policy in certain ways, including supporting a ban on fractional reserve banking and the abolition of the Federal Reserve. These fond memories were brought back this afternoon when we read Peter Cohan's item speculating that the Fed may be playing politics with interest rates.
Many polls indicate that the Republican party is unpopular and that Democrats are therefore likely to make gains in November. How do interest rates figure into the election in November? With consumer credit card borrowing at near record levels of $2.2 trillion in June and 26.8% of mortgages in adjustable rates, each time the Fed raises rates, it puts the squeeze on millions of voters who are already paying close to $3 a gallon to drive to work.
So if the Fed raises rates, it turns up the anger boil against the party in power. If the Fed can hold off raising rates until after the election, it will take away a bit of potential pain from voters who might be making up their mind about whether to keep incumbents in power. Meanwhile, the 7% increase in labor costs translates into more money in the pockets of these potential voters.
Is election pressure keeping the Fed from controlling inflation? [BloggingStocks]