The impact of the Federal Reserve on the elections in 1992 Term Paper

The impact of the Federal Reserve on the elections in 1992 - Term Paper Example This led Federal Reserve board to make small reduction on short term interest rates, 1 perhaps with the confidence that such reduction was to be mild and brief. According to an News Times report, FED trimmed Federal Fund rates that banks charge one another for overnight loans from 6% to 5.75%, with the discount rate ,which Fed levies on banks for short term loans remaining constant at 5.25%.1However, the effects of interest rates are usually not realized immediately, and take time to be felt in the market.2 The delayed actions by Fed in lowering interests rates were therefore not realized immediately upon the interest cuts; recession was increasing rapidly, and as people have increasing hope in the policies of an opponent in such cases, Clinton’s economic policy in 1992 election were magnified by Fed delayed actions, with studies portraying the electorate as preferring Clinton to Bush. 3There have been discussions on the effectiveness of this intervention in the market by Fed in 1992, where many analysts have termed the intervention as too late and too little in terms of stimulating the economy; with many analysts arguing the interve ntion resulted to increasing inflationary rates in the economy as long term interest rates remained persistent.3 Despite reduced interest rates to encourage borrowing, fed interference in the economic dynamics resulted to increased inflationary rates, which were evidence after the elections. To deal with growing public spending deficit, the top marginal income tax rate was raised from 31% in 1992 to 39.6% in 1993, which was similar to a 42.55 increase when Medicare tax hikes were included. 4This was proved by the economic growth that was recorded at 4.3% annually in the last quarter of 1992, but dropped to 1.7% annual rate in first quarter of 1993. 4 This reduced growth was a result of long term interest rates that continued to haunt the economy; the high interest rates were shelved in 1992 when they were