Could Obama be the first U.S. president to never see a Fed rate hike?
The Fed announced today that it would forgo raising shorting term interest rates, a story that’s been told since September 2007 (August 2007 if you’re using the effective Federal Funds rate).
Here’s a look at the Federal Funds effective rate over the past 10 loosening cycles, labeled by when the loosening cycle started according to the effective federal funds rate.
(As a note: a loosening cycle is when the Federal Reserve consistently lowers short-term interest rates through the use of its Federal Funds target rate.)
Perhaps completely unsurprisingly, the current loosening cycle is the longest in the past 60 years.
As of writing, the Federal Reserve has been in “loose” mode for about 2,600 days, or a little over 7 years.
The previous loose cycle started in April 1989 and lasted about 1,725 days (about 4 and ¾ years).
One thing left out when looking at the effective Federal Funds target rate by cycle is the political cycle.
The next graphic looks at the Federal Funds effective rate by U.S. president.
One can clearly see the jumps during the Carter presidency, a move that likely caused Carter’s reelection loss to Reagan.
Another president that clearly stands out is the sitting president – President Obama.
If current trend holds, or if the economy sours soon, or if the economy simply does not grow as fast as the Federal Reserve thinks it should, President Obama could go down as the first U.S. president to have never experienced movement in the Federal Funds target rate.
Think about that. The sitting U.S President may never see a rate hike or decrease for the entire length of his presidency!
Rate Hikes by president
Certainly, most economists would simply say that the strength of the economic recovery has been so weak that the Federal Reserve really had no chance to increase interest rates.
A more reasonable response is that the current Federal Reserve chair has a soft spot for her appointer.
Just think about it. Ms. Yellen and Mr. Bernanke, over the past six years, really had no chance to increase the Federal Funds rate? Even the European Central Bank, the monetary authority over some of the weakest economies on the planet, found a way to increase interest rates a few times in the past six years.
No other U.S. president has had anything close to such a luxury.
Overall, Mr. Obama may go down as the first U.S. president to have never experienced a Federal Reserve rate hike during his presidential tenure. He is one lucky man to have such an obliging Federal Reserve chair.