As November's US presidential election draws near, interest grows in how the Federal Reserve is going to balance managing the economy and managing candidate's demands.
After all, Alan Greenspan is the same Fed chairman who cost Bush senior the election in 1992, isn't he? And surely the Fed would never raise rates in an election year?
Well, Mickey Levy, Bank of America's chief economist, has research that disproves that notion. Looking at the elections since 1960 he finds that the Fed has raised rates in six of the 11 and reduced them in five.
"With only one exception, the Fed has tended to raise and lower rates in response to economic and inflation conditions in election years in a similar manner as during off-election years," writes Levy in his report, The Fed's Reserve.
The exception was 1972 when chairman Arthur Burns didn't raise rates as much as conditions required. There is, says Levy, evidence to point to complicity between Burns and Nixon to aid Nixon in his successful campaign.
Aside from that, the Fed acted as independently as was intended, regardless of whose appointee was in office. The largest rate increase, just over 2%, was in the 1980 election when, says Levy: "Carter's hand-picked Fed chairman, Paul Volcker, initiated the Fed's dramatic and successful fight against inflation by raising the funds rate several percentage points to over 15%". Carter lost to Reagan. The Fed also put up rates in 2000, although only in the first half of the year.
Another notable shift was in 1960, when Kennedy beat Nixon. That year the Fed cut rates from 4% to 2.4%, not that it helped Nixon. As for the 1992 election, Greenspan was cutting rates, to 3% from 4.4% at the start of the year.
So what does that mean for this year? Rates might well need to rise in the second half of the year, and Levy says that if Greenspan feels it's needed, he'll do it, even at the risk of a second Bush administration accusing him of failing it.