Dec. 16 at 7:41 PM
Morgan Stanley: Last wk's Fed meeting provided incremental support for our positive 2026 outlook on equities
Fed delivered on iexpected hawkish rate cut but also indicated to do more if the labor market continues to soften
More important than the rate cut was Fed's decision to restart asset purchases - to immediately begin buying
$40B of T-Bills/month to ensure smooth operation of financial markets
Fed is not independent of markets & market stability often plays a dominant role in Fed policy beyond the stated dual mandate
Given size of the debt & deficit, Fed has an additional responsibility to assist Treasury in funding the govt & will likely continue to work more closely w/ Treasury
Decision to intervene in funding markets sooner & more aggressively than expected may not be ‘QE’ as defined by the Fed. However, it is a form of debt monetization that directly helps to reduce the crowding out from the still growing Treasury issuance, especially as they issue more Bills over Bonds
$TBIL $SPY