What if post-election Fed were shackled?

Investors staring squarely at the US fiscal cliff may well be ignoring a bigger monetary policy pitfall.

Many asset managers are puzzled at the how little attention world markets seem to have paid to the U.S. Republican party's stiff criticism of the hyper-active Federal Reserve and its successive bouts of reflationary money printing since 2008.

Given the scale of support the Fed - along with the European Central Bank, Japanese and British central banks - continue to provide global asset prices, then it's remarkable how little markets have been ruffled by next month's tight election race.

This past week's first of three U.S. presidential debates was a starting gun for a month of intense electioneering that is at least starting to focus minds on how markets may behave around the Nov. 6 poll.

To date, most of the talk has been how quickly the next president and new congressional constellation can dodge the looming fiscal cliff, where $600 billion in spending cuts and expiring tax relief - some 4 percent of U.S. output - kicks in automatically next year without a wider budget agreement.

But with such an agreement as dependent on the makeup of the House and Senate as the occupier of the White House, this budgetary uncertainty has been parked in watch, wait and see mode until the election outcome becomes clearer.

The running assumption is that one form of 'gridlock' prevails and a deal gets thrashed out in time. On balance, the polls point to incumbent Democrat Barack Obama retaking the presidency, Republicans the House, and the Senate up for grabs.

But if Republican challenger Mitt Romney's strong showing in the first debate on Wednesday night translates into opinion poll gains both nationally and in key swing states, then the prospect of a clean sweep for Republicans may have to be priced into markets rather quickly.

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