Why QE3 will matter less than you think in the 2012 election

September 13, 2012

The news out today that the Federal Reserve will take further action to stimulate the economy -- known in technical terms as "quantitative easing" -- immediately sent stock price soaring and political strategists scrambling to figure out what it all means for the presidential election.

The answer? Not as much as you think -- at least according to several smart economic-minded strategists on both sides of the aisle we talked to this afternoon.

"I think the economy's impact on the election is baked in," said Tom Gallagher, a Democratic strategist who specializes in analyzing the economy. "Some Fed critics say the Fed appears to be trying to help Obama with this move, but I think the Fed's action fits in with the GOP critique -- if the economy were fine, the Fed would not have had to act."

(Lanhee Chen, policy director for Mitt Romney's presidential campaign, said the Fed's action offered "further confirmation that President Obama’s policies have not worked.")

A look at the trend lines on the economy would suggest Gallagher is right.  A majority of voters haven't approved of the way Obama is handling the economy since June 2010 in Washington Post-ABC polling and large majorities of the country have felt that the U.S. is heading in the wrong direction for years.

What the consistency of those numbers suggest is that peoples' feelings about the state of the economy are a) negative and b) already built in to their calculations about who to vote for. It's the same argument we've long made that regarding the unemployment rate; if it hadn't started to drop by early summer it wouldn't wind up helping Obama even if it started to head downward in the fall. Minds are made up on the economy.

That goes double when it comes to something as complex as quantitive easing, of which the Fed has now engaged in three rounds -- hence QE3.  Simply put: Most people have no idea what the Fed does and they certainly don't get the intricacies of buying back clumps of mortgage bonds and what it can do for the economy.

"Average people have no idea what this means, and it won't have a short term impact (next two months) beyond a short pop in stocks that I think will be ephemeral,"predicted one Republican operative.

The GOP source added that the most important thing -- politically speaking -- that the Fed announced today was its expectation that unemployment would remain over 7 percent for (at least) the next two years. The implications of that extended period of high unemployment, according to the source, could impact both Romney and Obama going forward.

If Romney is president "he is really going to have to fix the economy, he's not going to walk into any kind of booming recovery, the way team Obama seems to think," said the source. "If it's Obama and the economy continues in the [toilet] for most of his second term, it has the potential to do lasting damage to his party in the 2014 midterm and the 2016 presidential with a comparatively weak Democratic bench."

The real political impact of QE3 might then not be felt between now and November but rather in January and beyond. Keep that in mind amid the din of "what it all means" analysis sure to fill the airwaves (and blog....waves?) over the next 24-48 hours.

Chris Cillizza writes “The Fix,” a politics blog for the Washington Post. He also covers the White House.
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Sean Sullivan · September 13, 2012