Greenspan Put

About Greenspan Put

The Greenspan Put refers to the perceived tendency of Federal Reserve Chairman Alan Greenspan to cut interest rates whenever stock markets fell significantly. Named after the put option that protects against declines, the Greenspan Put was first evident after the 1987 crash, when Greenspan provided liquidity. The pattern repeated in 1998 during the LTCM crisis and after the 2001 dot com crash. Investors came to believe the Fed would always bail out markets, encouraging risk taking. The Greenspan Put was criticized for creating moral hazard. Greenspan denied he was targeting stock prices. The Bernanke and Powell Feds continued the pattern, reinforcing expectations of Fed support during market downturns.