“Election Year Theory” — Interest Rates

by Kerry on October 22, 2012

We found an article from Sovereign Bank about the “Election Year Theory”. There are tons of “Election Year Theories” in various areas: mortgage, stocks, abortion, etc. The article we found from Sovereign Bank regarding Interest Rates posted the chart below.

So, is the Federal Reserve Board “under political pressure to keep interest rates stable or lower prior to an election in order to make it more attractive for voters to vote for the incumbent?” If the theory is true then mortgage rates would drop immediately after a presidential election. Is it true? According to the article, “History says no.”

3 Months Before Election Election Month 3 Months After Election 6 Months After Election
1972 – RICHARD NIXON (Republican) 7.40% 7.43% 7.44% 7.65%
1976 – JIMMY CARTER (Democrat) 9.00% 8.81% 8.67% 8.82%
1980 – RONALD REAGAN (Republican) 12.56% 14.21% 15.31% 16.40%
1984 – RONALD REAGAN (Republican) 14.47% 13.64% 12.92% 12.91%
1988 – GEORGE H.W. BUSH (Republican) 10.60% 10.27% 10.56% 10.77%
1992 – BILL CLINTON (Democrat) 7.98% 8.31% 7.68% 7.47%
1996 – BILL CLINTON (Democrat) 8.00% 7.62% 7.65% 7.94%
2000 – GEORGE W. BUSH (Republican) 8.03% 7.75% 7.05% 7.15%
2004 – GEORGE W. BUSH (Republican) 5.87% 5.73% 5.63% 5.72%
2008 – BARACK OBAMA (Democrat) 6.48% 6.09% 5.13% 4.86%

 

Obviously due to the economy, the numbers have been low for a good stretch of time. We shall see what this election year brings.

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