Bernanke won't hurt Obama's election chances

By Joe Deaux

Federal Reserve Chairman Ben Bernanke won't likely help or hurt President Barack Obama's re-election chances in November.

U.S. equities closed slightly lower Tuesday after the Fed downplayed the prospects for more quantitative easing during an election year, which leaves a voter to wonder if QE3's dimmed prospects would batter stocks and thus hurt Obama's re-election chances.

"We have a fair amount of evidence, I think, about how (quantitative easing measures) affect bond markets, but I'm not aware of much evidence of how they affect equity markets," said Benjamin Friedman, an economist at Harvard University. "The idea of an impact one way or the other on the equity markets seems rather remote . . . as opposed to the bond market."

"To talk about whether the stock market has an effect on voting behavior isn't quite the right causal thing to talk about, because the economy has an effect on both the way people vote in November and what the stock prices are any given time," said Ray Fair, a Yale University economist who has written an econometric equation that predicts presidential election outcomes.

Related Articles

• Mitt Romney hasn’t got it locked up yet
• First you screw up, then lie and finally die
• A brokered GOP convention is very unlikely

How the real economy responds from now through November would probably hold the most sway for voters' presidential preference, more so than Fed policy.

Fair said the stock market action doesn't necessarily influence or cause people to vote and that the actual state of the economy matters more in the election booth.

Even if Bernanke and the Fed were to instate some serious adjustments -- say, more quantitative easing -- within the next few months, it would take a while for monetary policy to have an effect on real output, pricing and unemployment.

Fed adjustments could occur if the economy loses momentum or if inflation seems likely to stay below a rate of 2% over the medium term, according to Tuesday's Fed minutes. But that scenario would transpire as a reaction to a broader economic trouble, not as a proactive move by the central bank.

Hypothetically, though, if the Fed continues to pivot back and forth on its announcements about QE3 and it has a big effect on the bond markets, Fair said, it probably would have small effects from now to November on real output and unemployment, which could matter for the election.

Regardless, the general election outcome will likely depend on whether the economy continues to grow or if it falls into another semi-recession come November. And that development would be independent of anything Bernanke might say.