Why Market Stability Matters to the Fed

Mike Wilson, Morgan Stanley CIO and Chief U.S. Equity Strategist, discusses the implications of the Fed's recent meeting for the stock market. He highlights the Fed's decision to restart asset purchases, specifically buying $40 billion of T-bills per month, which exceeded market expectations. Wilson interprets this as a form of debt monetization aimed at ensuring financial market stability and assisting the Treasury in funding the government, reinforcing his long-held view that the Fed is not independent of markets. He notes that these purchases provide liquidity and suggest the Fed is less concerned about missing its inflation target, aligning with his "run it hot" thesis. While bullish on equities for the next 6-12 months with an S&P 500 target of $7,800, he acknowledges a near-term risk if the asset purchase program is insufficient to meet market liquidity needs, similar to 2019. He concludes that the Fed will likely continue to react to market tremors, making any short-term correction a buying opportunity.