“It’s truly amazing how the fate of the entire world seems to rest on whether we do 25bps or 50bps this week.”

So said an incredulous reader on Monday afternoon, as the clock ticked down on the most anticipated Fed decision since the Committee was in the process of ratcheting rates higher to contain a generational inflation surge.

I share that reader’s incredulity. It is amazing that we’ve all come to believe, or come to behave as though we believe, that humanity will perish of flourish depending on the size of this week’s Fed cut. It’s also absurd. Absurd that we’re behaving in that way, and if you know anything about me, you can probably surmise how I feel about it: It betrays an unfathomably inane proclivity to obsess over matters which, in the grand cosmic scheme of things, aren’t just pitifully trifling, they’re utterly irrelevant, just like humans.

That said, this is the price of money and credit we’re talking about. As far as pitifully trifling human affairs go, that price is as important as it gets. Money makes the rock we’re all marooned on go ’round, and in a testament to the depravity of our species, progress (human advancement) is everywhere and always brought to you by avarice. As for credit… well, don’t forget what credit is: A manifestation of faith in the future. Without credit, we’re back in the Dark Ages.

So, while agreeing wholeheartedly with the reader mentioned above that the debate around the size of this week’s Fed cut is by now blown so far out of proportion as to be a grotesque caricature of the always frenzied debate around FOMC meetings, it’s with deep regret that I’ll concede the price of USD credit is pretty goddamn important. Hence everyone’s obsession over this week’s pivotal Fed decision.

As discussed here on several occasions in recent days (see this piece, for example), I don’t agree with the notion that the best way for the Fed to “prove” it isn’t interested in playing politics is to avoid going big this week, comforted by the notion they can just cut again on November 7, when the election’s over. Here’s why:

• A Fed thinking that way is a Fed already playing politics, by definition — “Don’t think about pink elephants.”
• The election isn’t going to be “over” on November 7. No, there won’t be a connection between anything the Fed does or doesn’t do on November 7 and Donald Trump’s performance at the ballot box, but being seven and a half years dead didn’t spare Hugo Chávez blame for Trump’s 2020 election loss, so coming two days after the election won’t spare the November FOMC meeting some kind of grief either.
• Most importantly — and this is, I think, one thing Republican and Democratic voters, if perhaps not politicians, can agree on — it’d be better if the Fed wasn’t front-page news during election week unless it’s absolutely necessary. If they need to cut on November 7, they need to cut. End of story. But if there’s a strong macro case for a 50bps cut this week (and there is) and if such a cut might obviate the need to cut again at the very next meeting (and it might), then why not take the free option to stay off the front pages during Election week?

All of that said, one thing the Fed could’ve done without on Monday was Elizabeth Warren demanding a 75bps cut this week. “If the Fed is too cautious in cutting rates, it would needlessly risk our economy heading towards a recession,” Warren, Sheldon Whitehouse and John Hickenlooper wrote, in a letter to Powell. “The Committee must consider implementing rate cuts more aggressively upfront to mitigate potential risks to the labor market.” “It may be too late,” they despaired. “Your delays have threatened the economy and left the Fed behind the curve.”

A couple of things on that. First, she’s right. Second, I like Warren and as regular readers are well apprised, I don’t give a damn who knows it. Just like I don’t give a damn for the whole world to know I think Ilhan Omar would make a good president. However, I call it like it is, and here’s how it is with ‘Liz: She’s almost always right, but she’s infallibly abrasive, and that’s almost never helpful. In some cases, it’s downright unhelpful, this (this letter of hers to Powell, 48 hours before the fate of the world’s decided) being one of them.

I can’t for the life of me understand why one of Warren’s advisors didn’t plead with her to stay out of Powell’s hair this week. He’s not, as she once charged, a “dangerous man” (that’s one instance where Warren was definitively wrong) and this week he’s trying to help by marshaling support among his colleagues, some of whom are reluctant, for a 50bps cut. And what does Warren do? Badger him for a 75bps cut which i) isn’t going to happen, ii) isn’t justified by the data and most unfortunately iii) imparts an extra air of politicization to a decision that was already being scrutinized by the GOP and the Trump campaign.

If anything, Warren might’ve decreased the odds of even a 50bps cut on Wednesday by tilting at windmills. Mercifully, the die appeared to be cast (for 50) by the time she and Sancho Sheldon saddled up to slay dragons. Between wink-wink articles from Nick Timiraos and Colby Smith last week, a Sunday exhortation from Greg Ip in the Journal and, finally, a Monday Bloomberg Opinion piece by Bill Dudley who flat out said he “expects” a half-point move, the writing was on the wall in big letters.

Finally, I’d be remiss not to remind readers that Dudley isn’t necessarily averse to the notion that monetary policy can or even should be separate from politics. In a(n) (in)famous 2019 Op-Ed, Bill said,

There’s even an argument that the election itself falls within the Fed’s purview. After all, Trump’s reelection arguably presents a threat to the US and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives. If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020.

Bill took a lot of criticism for that essay, but let’s face it: He wasn’t entirely wrong. And to the extent he was right in 2019, he’d be even more right today if he re-published the same piece.