The future of the “Greenspan Put”
Remember the Greenspan Put? Is the current Fed excersising that Put? From CME ;
The Federal Open Market Committee (FOMC) issued a press release in the early afternoon on Wednesday, January 25 indicating that it “expects to maintain a highly accommodative stance for monetary policy … [and will] … keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.” 1This announcement comes on the heels of the Fed’s announcement last August 9, 2011 when it indicated its intent to maintain the target Fed Funds rate, its primary monetary policy tool, at the current level of 0 to ¼ percent “at least through mid 2013.” 2 The Committee further provided its specific economic projections extending into 2014 implementing a new policy of greater transparency with respect to the inputs and process of establishing monetary policy.
The current Fed action has pushed rates down to
new generational lows. To the extent that the Fed
expects to extend its current “easy money” policy
into late 2014, one might suggest that it is
exercising the proverbial “Greenspan put,” i.e.,
pulling out all the stops to put a floor under asset
values including stocks and bonds. Certainly the
immediate market reaction, as expressed in
domestic equity markets, was quite positive. But
this comes at the cost of devaluing the U.S. dollar
(USD) vs. other major currencies.
Full paper here.