Everyone’s favorite sell-sider gets it.

By “it” I mean the rationale for casting a wary eye at Kevin Warsh in the context of a US president who — and I’ll be diplomatic here — doesn’t see much utility in the decorum Oval Office occupants typically observe vis-à-vis US monetary policy.

No one, least of all me, actually believes Fed policy’s apolitical. That’s not the crux of the issue with Donald Trump and Warsh. Rather, the main concern — or my main concern, anyway — is that Trump doesn’t seem to appreciate why it’s important to pretend.

There’s a lot to be said for dropping useless pretenses, but this pretense happens to be important. It serves a valuable purpose — namely, it helps keep the money stable.

In a short Monday dispatch, Nomura’s Charlie McElligott said, “I get the skepticism on Warsh / Trump.” He didn’t go into any additional detail on that particular point, but at least he alluded to the elephant in the room. That’s more than you can say for most people who weighed in last week, following Warsh’s first FOMC meeting.

McElligott’s larger point on Monday was that between lower oil prices on the Iran MOU and the idea that we can assume tomorrow’s AI productivity gains while making policy for today, Warsh may believe he has “a pass to watch and wait for summer data to confirm or deny ‘transitory’ inflation.”

That, Charlie fretted, “increases the likelihood of a catch-up hike” if the inflation data doesn’t relent. By “catch-up hike,” he meant a scenario where the Warsh Fed has to concede, “Oops, we’re behind the curve, and now we gotta go 50 out of the gate.”

I think the Trump factor rules that out, but that’s just what McElligott sought to address. In other words, notwithstanding — and in the context of the Iran deal as air cover, because of — the Trump dynamic, we have to be aware of the tail risk.

“Most equities folks are thinking there’ll ‘only’ be 1-2 Fed hikes at worst, and many expect commensurate Fed cuts thereafter, partially as a function of ‘transitory’ inflation, but predominately due to the belief that AI will be disinflationary via productivity gains,” he said, before delivering a word of caution.

“I get the skepticism on Warsh / Trump, but a ‘larger-hikes-than-currently-priced’ scenario feels heavily under-appreciated for stocks [as] the consensus equities view remains wildly skeptical of any sort of legitimately hawkish Fed policy path [despite] the ‘overheat’ clearly evidencing itself in US inflation data,” he wrote.

The “good” news is, any equity dip that might accompany a “wake up and smell the overheating economy” moment would almost surely set the stage for a reversal. Because US stocks are simply too big to fail, and the Fed knows it.

“If equities were to tantrum on ‘hiking risk,’ the collateral damage via a negative wealth effect would ironically force an easing response thereafter, because the Fed’s perpetually beholden to equities,” Charlie said.