What is a Greenspan put?

By Justin Bynum AAA
A:

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.

RELATED FAQS

  1. Why is the crowding out effect less likely to occur during a deep recession?

    Learn more about the crowding-out effect of government fiscal policy on private investment markets and whether it changes ...
  2. What phase of the economic cycle tends to be strongest for companies in the Internet ...

    Learn which phase of the economic cycle features the best performance for the Internet sector and how portfolio managers ...
  3. What is GDP and why is it so important to investors?

    The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents ...
  4. How can I protect my investment portfolio from recessions?

    Learn how to use the beta coefficient to identify sectors you can invest in to mitigate portfolio losses during times of ...
RELATED TERMS
  1. Wall Street Journal Prime Rate

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

    The online market where investors can purchase federal government ...
  3. Global Recession

    An extended period of economic decline around the world. The ...
  4. The Great Recession

    The steep decline in economic activity during the late 2000s, ...
  5. Appraisal Management Company - AMC

    An independent entity through which mortgage lenders order residential ...
  6. Overnight Rate

    The interest rate at which a depository institution lends immediately ...

You May Also Like

Related Articles
  1. Investing

    Looking To Invest In the Third-Largest ...

  2. Trading Strategies

    Consider The Season On Trading Day

  3. Stock Analysis

    Is This The Right Way To Invest In Silver?

  4. Bonds & Fixed Income

    End of Fed's Bond-Buying Program: 7 ...

  5. Investing Basics

    An Investor's Guide To Bank Stress-Testing

Trading Center