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The Greenspan “Put”

The Greenspan Put: In July 1995, the Fed cut the funds rate 25 basis points. What made this so odd was that it followed a string of seven rate increases over the previous 12 months. There was another 25 basis point rate cut in December, and yet another in January of the following year.

There was no real justification for these cuts. The mid-1990s economy was growing nicely, and the stock market was up significantly, over 34 percent. In 1996, equities tacked on another 20 percent for the year.

Wall Street correctly figured out that these cuts had put a floor under equity prices. Thus the “Greenspan put” was born.