For the better part of a decade, Wall Street has operated under an implicit assumption: when things get bad enough, the Federal Reserve will step in. Morgan Stanley is now telling investors to stop counting on that.
The bank’s strategists issued a warning that equities face a “major test” ahead, and that the Fed is unlikely to provide the kind of supportive measures that investors have come to expect during turbulent stretches.
The end of the Fed put
This isn’t exactly a new theme for Morgan Stanley. Back in 2019, the firm cautioned that “the puts have expired,” a reference to the widespread belief that both trade policy and Fed intervention would always backstop falling markets.
The key variable this time is leadership at the top of the central bank. Fed Chair Kevin Warsh’s tenure has marked a clear departure from the easing bias that characterized previous administrations.
