With U.S. Fed rates held steady this past month, there's been continued chatter around the independence of the Fed and speculation that rates will hold steady until after mid-term elections, after which it'll be a blood bath. My thesis is that the Fed (and other federal economic institutions - see employment reporting from BLS) can and does act independently of the political environment in general. To test this, I reviewed the Fed rate in the context of PCE/Core PCE and elections.^1
If the Fed was influenced by the political environment, one would expect to see premature rate cuts before elections and rate hikes delayed until after elections. Odd timing in the Fed rates can be spotted (e.g., deep cuts prior to the '08 presidential election), but those can often be explained and there are examples of the opposite (e.g., rate hikes leading up to the '22 midterm election).
If there was a real influence, it should appear in the aggregate data. Reviewing all data from the 1980 election onwards^2, there does not appear to be any bias. The [median (min - max)] change in Fed rates was +0.1% (-4.1% to +3.7%) in the 12 months prior to midterm or presidential elections and -0.1% (-4.4% to +2.1%) in the 12 months after elections. These values change very little if a 6-month time frame is used or if one type of election (presidential vs midterm) is excluded, and the mean change in Fed rates are similarly close to 0%.
Overall, the data appears to suggest an independent Fed despite a commonly discussed theory that the timing of Fed rate changes are affected by elections.
\1. Data from fred.stlouisfed.org. PCE: PCEPI. PCE, Core: PCEPILFE. Fed rates: average of DFEDTARL and DFEDTARU (12/2008 onwards), DFEDTAR (9/1982 to 12/2008), and FEDFUNDS (prior to 9/1982). Create in Excel.
\2. Date was chosen somewhat arbitrarily, trying to balance a sufficiently large sample size while focusing on the "modern" context. Trimming the dataset to 2000 onwards, for example, changes results very little.