Fed Be Wary, Fed Be Quick: FOMC Faces Possibility Of President Trump

Well it was a sea of red overnight in Asia as traders ponder a world under the (smallish) thumb of a President Trump.

The billionaire is tied with with Hillary Clinton in the latest ABC poll:

As noted here on Tuesday, it now appears that a campaign many voters likened to a circus sideshow may end up winning the White House thanks in no small part to continued questions about Clinton’s email practices and a general sense among voters that the former Secretary of State is not to be trusted. No one seems to care that we’re getting very close to electing a man who eschews corny pickup lines in favor of shaking hands with women’s crotches (just call it the “direct approach” or maybe “no beating around the bush”).

It’s against this rather surreal backdrop that the Fed will begrudgingly release a policy statement this afternoon. Make no mistake, they dare not rock the boat in any way, shape, or form. Here’s Bloomberg’s Richard Breslow describing just how careful Yellen and co. need to be in the face of America’s election jitters:

The FOMC will be best served this afternoon if they follow the examples of the BOJ and RBA and do and say as little as possible. There’s just nothing incrementally positive to be gained by staking out a new, let alone, dispositive position. Their luck hasn’t just been good enough such that sacrificing full optionality five weeks ahead of the next meeting makes sense under the circumstances.

• There will be plenty of time and, Lord knows they have already scheduled plenty of occasions, to say what they need to say over the next couple of weeks

• I would just caution to remind — as Bill Dudley recently and pointedly said, “Some Fed speakers are more important than others” — the noted dissent within the board notwithstanding

• It was neither unreasonable nor overly surprising that there were three dissenters last time around. Although in Fed practice that was a big number. There was a reasonable case to be made to do something, especially in retrospect. The numbers have been going in the right direction. It isn’t unfair to view it as yet another opportunity lost

• But if they didn’t do anything then, making up for it now would border on an FOMC version of regulatory capture by headline

• In fact, the September dissenters, if they want to be practical rather than pedantic, should change their votes this time. Even if they come roaring back next week

• They should put their energies toward getting a statement that acknowledges economic and inflationary progress. Which will accomplish everything the hawks want anyway. Especially with futures priced where they are

• They don’t need to put back in “at its next meeting” language to get the point across. If it is there, it will be from a badly fashioned compromise on wording

• There is another more immediate issue that they will need to consider now, even if not December. Given the most recent news flow, financial conditions have snapped tighter. Particularly if you are looking at the S&P 500, which has slipped right to very important technical support ahead of 2100. Temporary? Possibly. But is it a discussion they want to be a part of at the moment?