Only five months into his tenure as Federal Reserve Chairman, Alan Greenspan faced his first crisis: the October 1987 stock market crash.
In a move that would become the hallmark of his tenure, Greenspan lowered the federal funds rate by 50 basis points, restoring order to the markets and giving investors confidence that the Federal Reserve would take decisive action when financial crises came to a head.

It was not until approximately ten years later that the term "Greenspan put" would enter the investment lexicon formally. Greenspan's willingness to lower the federal funds rate during challenging economic periods, such as the 1987 stock market crash, the 1990-1991 recession, LTCM, The Asian Contagion, the unwinding of the Nasdaq bubble and the period following the September 11 attacks created the perception that, so long as Greenspan remained chairman of the Fed, monetary policy would come to the rescue - hence, the "Greenspan put."

(For more on this topic, read How the Federal Reserve Was Formed and The Federal Reserve's Fight Against Recession.)

This question was answered by Justin Bynum.

  1. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  2. How is the Federal Reserve audited?

    Contrary to conventional wisdom, the Federal Reserve is extensively audited. Politicians on the left and right of a populist ... Read Full Answer >>
  3. Who decides when to print money in the US?

    The U.S. Treasury decides to print money in the United States as it owns and operates printing presses. However, the Federal ... Read Full Answer >>
  4. Why do some people claim the Federal Reserve is unconstitutional?

    The U.S. Constitution does not mention the need for a central bank, nor does it explicitly grant the government the power ... Read Full Answer >>
  5. How can the federal reserve increase aggregate demand?

    The Federal Reserve can increase aggregate demand in indirect ways by lowering interest rates. Aggregate demand is a measure ... Read Full Answer >>
  6. How does the stock market react to changes in the Federal Funds Rate?

    The stock market reacts to changes in the federal funds rate in various ways depending on where it is in the business cycle. ... Read Full Answer >>
Related Articles
  1. Economics

    What's the 1913 Federal Reserve Act?

    The 1913 Federal Reserve Act was a pivotal congressional act that helped establish the Federal Reserve System as it exists today. It is one of the United States financial system’s most influential ...
  2. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  3. Economics

    Open Market Operations vs. Quantitative Easing

    How does the Fed's implementation of Quantitative Easing differ from its more conventional open market operations?
  4. Professionals

    Will Interest Rates Rise at the Next Fed Meeting?

    Everyone wants to know what the Federal Reserve will do next, but the Fed doesn't even know what it's next move will be.
  5. Markets

    Is Another Bear Market Ahead?

    With market volatility recently reaching its highest level, investors are questioning what the outlook is for U.S. stocks in 2015 and beyond.
  6. Economics

    What Does a Central Bank Do?

    A central bank oversees a nation’s monetary system.
  7. Stock Analysis

    Why Is GE Selling Some of Its Subsidiaries?

    Learn why GE is selling off a substantial amount so it does not have to comply with increased government regulation in the wake of the 2008 financial crisis.
  8. Investing News

    Why Did Markets Rally on News of a December Rate Hike?

    Yesterday, Fed chairwoman Janet Yellen, in a speech to the University of Massachusetts at Amherst, indicated that the central bank is on track to still raise rates before the year is out.
  9. Economics

    How US Interest Rates Move the World Economy

    Because the US has the world's largest economy, fluctuations in America's interest rates affect much more than domestic growth
  10. Forex Strategies

    Will a Rate Hike Appreciate The Dollar Even More?

    Many market participants expect the US Dollar to rise after the start of the next rate hike cycle.
  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  2. Monetary Policy

    Monetary policy is the actions of a central bank, currency board ...
  3. Marginable

    Definition of "marginable."
  4. The New Deal

    A series of domestic programs designed to help the United States ...
  5. G.19 Report

    A monthly statistical report from the U.S. Federal Reserve that ...
  6. Wall Street Journal Prime Rate

    An interest rate that large banks in the United States charge ...

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!