While former Fed Chairman Alan Greenspan said the notion of the “Greenspan put” was a “joke, ” current Fed chief Janet Yellen isn’t laughing; she seems serious about raising rates for the first time since 2006, according to Bloomberg. She is committed to looking at the long-term economic picture, even if this might cause some volatility in the stock market. The notion of the Greenspan put, some cushioning in case things go south, like a put option protects against a freefall in share prices, may be a thing of the past.
Alan Greenspan seems to dislike the term “Greenspan put, ” and said it has always been Fed policy to add temporary liquidity to ease shaky financial conditions. However, some economists argue that the big banks have more of a safety net than they had in the past. William C Dudley, President of the New York Fed told Bloomberg, “Let me be clear, there is no Fed put, because financial-market conditions affect economic activity only slowly over time. This suggests we should look through short-term volatility.
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The Fed believes the banks are in a stronger position than they were during Greenspan’s 18 years at the Federal Reserve. In fact, there could be an argument that his increasing liquidity might have had a direct or indirect contribution to the dot.com bubble that popped in 2001.