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Economics, politics and the federal funds markets: does the Fed play politics?

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  • O. David Gulley
  • Jahangir Sultan

Abstract

No, the Fed does not appear to play politics with respect to setting the federal funds rate. We examine the federal funds spot and futures rates to infer the Fed's response to political pressure from partisan politics during election and nonelection years. We find little evidence that political variables influence either market, suggesting that spot and futures traders act as if the Fed's behaviour is similar across election and nonelection years. Our evidence suggests that federal funds traders believe the Fed generally behaves in a politically neutral fashion.

Suggested Citation

  • O. David Gulley & Jahangir Sultan, 2011. "Economics, politics and the federal funds markets: does the Fed play politics?," Applied Financial Economics, Taylor & Francis Journals, vol. 21(14), pages 1005-1019.
    • Handle: RePEc:taf:apfiec:v:21:y:2011:i:14:p:1005-1019
    DOI: 10.1080/09603107.2011.562163
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