White House, Fed May Spar as Election Approaches

Wednesday, 11 May 2011 02:48 PM

By Dan Weil

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The Federal Reserve may be close to pulling back on some of the massive easing it has implemented since the financial crisis of 2008-09. And that may put the central bank at odds with the Obama administration, Politico reports.

The Fed’s $600 billion of Treasury bond purchases are scheduled to end in June, and inflation hawks at the central bank don’t want to see another round of purchases, known as quantitative easing. Many economists anticipate that the Fed will start raising interest rates next spring.

But President Barack Obama won’t be happy to see rates increasing as he tries to win re-election, especially if the unemployment rate hasn’t dropped much below the current level of 9 percent.

“There could be pressure on the Fed to keep rates low, [but Fed Chairman Ben] Bernanke will tighten monetary policy if necessary,” Eugene Profit of Profit Investment Management told Politico. “Politically, high inflation rates would be a concern in the elections, although perhaps to a lesser degree than job creation.”

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