The Greenspan Put is Dead: Long Live Bernanke
In the midst of a stock market correction, a serious reassessment of the price of risk in world bond markets, and a seizing up of the high-risk mortgage market, the Bernanke Fed voted unanimously yesterday to stay patient and remain calm.
By keeping interest rates unchanged, and continuing to argue that inflation was the predominant risk for the economy, the Fed has officially told the market that the Greenspan Put is dead, or at least has a substantially lower “strike price.” Unless the Fed foresees financial market problems seriously affecting economic growth, it is unlikely to cut rates.