Recent work argues that policy-makers at the United States Federal Reserve are not politically indifferent (Clark and Arel-Bundock, 2011). The Fed tends to choose looser monetary policies during Republican administrations, possibly in order to ensure the (re)election of ideologically preferred presidents. This model excludes an essential aspect of monetary policy decision-making: expectations about future inflation. We use the Fed’s Green Book forecasts to test whether presidents’ partisan identification shapes the estimates of future economic performance that influence FOMC policies. We find that Federal Reserve staff probably do not bias their forecasts to influence Fed governors around elections. However, they do systematically overestimate inflation during Democratic presidencies and underestimate inflation during Republican ones. This suggests that while not electorally motivated, Fed staff have a partisan bias when making inflation forecasts.
The stock index “point” is a regular component of financial news reports. While much attention is paid to daily changes in stock index point totals, few people realize that the value of each stock index point also changes frequently. We call inattention to such variations “point blindness.” We describe point blindness' psychological causes and economic consequences. Our empirical inquiries include a content analysis of New York Times articles that demonstrates how news reports fuel point blindness and an experiment that we conducted on over 2,000 Americans. The experiment shows how simple changes in news presentations can significantly affect public perceptions of stock market performance. The directions of these perceptual shifts correspond to a refined understanding of the changing value of stock index points. Hence, small changes to news reports can provide valuable information to audiences.