Filed Under: ,

What is a Greenspan put?

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.

comments powered by Disqus
Trading Center