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Powell’s Fed Isn’t About to End the ‘Greenspan Put’

He started it.

Photographer: Chip Somodevilla/Getty Images

Will there be a “Powell put” now that Jerome Powell has taken charge as chairman of the Federal Reserve? To be sure, recent gyrations in stock prices are not sufficient for the central bank to change the policy path just yet. More interest-rate hikes are coming. But the return of volatility raises awareness that markets can shift quickly. Will the Fed be there to keep market turmoil contained? Probably yes, but there is a risk central bankers will be slow to respond to a market downdraft that threatens the economy.

Shortly after the market crash of 1987, the Fed cut rates, changing course in the middle of a tightening cycle. That action has famously become known as the “Greenspan put” because of the implied promise that central bankers led by Fed Chairman Alan Greenspan would bail out market participants who indulged in risky behavior.

Subsequent similar actions by the Fed have reinforced beliefs that it continues to use the Greenspan put. The Fed cut rates in the wake of stock market losses during the Asian financial crisis. It began its program of quantitative easing in response to the global financial crisis. More recently, the much-anticipated campaign to normalize rates was expected to begin in September 2015, but that hike was delayed until December after a tumultuous summer on Wall Street.

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