With five months left until Election Day, Ben Bernanke and the Federal Reserve must weigh whether to launch another round of stimulus that could spur the economy but invite charges of politicking for President Obama.
The central bank’s reputation, tested by the financial crisis, could take a massive hit if officials are perceived as trying to help Obama’s bid for a second term.
But if they stand pat, officials risk a repeat of 1992, when the bank did not lower interest rates after a recession and allies of President George H.W. Bush bitterly accused Alan Greenspan of helping Bill Clinton win the White House.
“The Fed has got themselves in a situation where if they do anything really aggressive, I think they’re going to get absolutely accused [of picking sides],” said Mark Calabria, director of financial-regulation studies for the Cato Institute. “They’re going to be part of the election, whether they like it or not.”
Experts say Fed officials are mindful of the election-year climate and determined to protect the bank’s reputation. Given the political risks, experts say, the Fed will only act to boost the economy if officials feel they have an ironclad case for doing so.