The Fed: September rate hike would break Fed tradition during election year

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The Federal Reserve Building is seen from the air over Washington, DC,

A Federal Reserve interest-rate hike in September would break the U.S. central bank’s tradition of no surprise tightenings during election years, according to Alec Phillips, an economist at Goldman Sachs.

“The Fed appears to have a greater aversion to surprise hikes than surprise cuts in general, this pattern appears even stronger in presidential election years,” Phillips said in a research note.

Since 1990, 6% of the Fed’s hikes have been less than 70% discounted by the market by the time of the meeting. In contrast, no pre-election rate hike —in 1968, 2000, and 2004— has been less than 90% discounted by the fed funds futures market by the time of the meeting, he said.

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