Donald Trump made headlines this week in accusing Janet Yellen and the Fed of keeping interest rates low to help President Obama. Said Trump:

“And in my opinion Janet Yellen is highly political and she’s not raising rates for a very specific reason: because Obama told her not to because he wants to be out playing golf in a year from now and he wants to be doing other things and he doesn’t want to see another bubble burst during his administration. Janet Yellen should have raised the rates. She’s not doing it because the Obama administration and the President doesn’t want her to.”

A fair amount of showmanship and hyperbole here on the part of Trump, but it raises an interesting question.

If the economy is the number one issue in almost every election and the Federal Reserve has the power to influence the economy through monetary policy, does the Fed hold the fate of the next election in its hands?

First, we need to establish that it is indeed the economy that is the best predictor of the presidency.

Recession = Change of Party

Since 1960, in every presidential election in which the U.S. economy was in or near a recession, the incumbent party has lost. Barack Obama was the last beneficiary of this correlation back in 2008 when the U.S. economy was in the midst of the worst recession since the Great Depression. Before Obama, presidents who defeated the incumbent party during U.S. recessions included: George W. Bush, Clinton (It’s the economy, stupid), Reagan, Carter, Nixon and Kennedy.

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Expansion = Remain in Power

Contrast this outcome with elections during which the U.S. economy was in an expansion. Here we see that the incumbent party has remained in power each and every time. The deciding factor for a “two-term” presidency has been the economy, with Obama, George W. Bush, Clinton, Reagan and Nixon winning a second term as economic conditions were favorable during their re-election year.

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