Rule No, 1: DON'T GET INVOLVED IN POLITICS! (but spare a thought for those that have to… like Her Majesty)

ref: - "Fed Rejects Call to Consider Politics in Policy Decisions”, The Wall Street Journal

First, our sympathies to HM The Queen… Her Majesty is already known to be distinctly unimpressed with the current standard of the UK's politicians and her opinion is not likely to be improved by the news that PM Boris Johnson will ask her to suspend parliament soon after it returns in early September until the Queen's Speech (purely a recital of government policy for the forthcoming session in which she has no input) on October 14th. Since the politicos take a three-week break for the political conference season anyway, the effective length of the "prorogation" of parliament amounts to just one extra week, but is clearly an attempt to shorten the time available to opponents of a "No Deal" Brexit to get their act together to stifle such an outcome.

As such it is an extremely contentious move by BoJo and could even result in a crisis over the UK's "unwritten" constitution. As far as Brexit and therefore UK assets are concerned, "the hits, they just keep on comin' “. Some had been very public in saying that since relations between the Prime Minister and other leaders on his short European tour and at G7 had remained at least affable, it was time to close out some of those short British Pound positions… only to see GBP / USD drop almost a cent in a straight line on this morning's news. Oh well, markets have a way of doing that to you sometimes…

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From someone who is tangentially involved in politics but must in all matters remain impartial (QE2), to someone (or some people) who are specifically required to stay above political considerations in the execution of their jobs but are under the most extreme (and inappropriate) pressure from one politician in particular. We're talking about Fed Chairman Jay Powell and his board members, and the abuse directed at them by POTUS for not lowering rates as quickly or aggressively as he would like. The President has taken to referring to Mr Powell as "my enemy".

In an extraordinary Opinion piece for Bloomberg former New York Fed boss William Dudley, a respected and influential figure has called for the Fed to abandon both its apolitical approach and its likely programme of rate-cutting. His rationale goes something like this:

By cutting rates the Fed is softening the damage caused by Mr Trump's trade war and thereby increasing the chance of his re-election in 2020 -- which Mr Dudley plainly believes will be a disastrous outcome. He defends his position by saying that the President's outrageous campaign against the Fed is an existential threat to the current Fed position of independence from political considerations. It means that its apolitical position is no longer tenable in these circumstances and should be modified if the Fed is to maintain its independence in pursuit of its dual mandate of maximum employment and control of inflation. There's an irony in there somewhere…

Now, before he entered the Federal Reserve system Bill Dudley was a well-known donor to the Democratic party so there are no surprises as to where his political affiliations might lie. There have also been occasions when other former high-ranking Fed officials have offered opinions that have blurred the line between politics and economics that is not always easy to discern. But those have been much more general or theoretical in nature, and this interjection by Mr Powell is unprecedented. It has been rejected of course by a spokesperson for the current Fed board, who reasserted the commitment to the mandate given to it and to the need to rise above political considerations at all times.

Quite right too… readers will have their own view about whether Mr Trump's call to slash rates is motivated chiefly by what he believes is right for the economy or by his desire to get re-elected… one may prove to be dependent on the other but Mr Powell thinks that the longer-term consequences of the latter coming to pass will be disastrous for Fed independence and by extension for the economy further down the line… He is effectively asking the Fed to abandon its independence in order to secure it.

It seems to us that would be a highly dangerous thing to do. By giving up its apolitical position, the Fed would be forfeiting the moral and ethical high ground, something of an abstract concept but a hugely important one in its struggles against a president who would seem to have little desire to assume that ground for himself. If the Fed goes down that route, they'll be involved in a much dirtier street fight with Mr Trump, and those are the ones he wins far more often than not.