Stock investors are counting on the Federal Reserve to step in when markets tumble. That expectation may be misplaced.
Many market participants believe the Fed will cut rates to support falling stock prices. This belief has been dubbed the “Fed put.”
But history suggests this safety net is largely a myth. The dot-com crash of the early 2000s is a key example.
Former Fed Chair Alan Greenspan did not cut rates to rescue portfolios. He was following standard economic rules, not reacting to stock market losses.
The “Greenspan put” was a convenient narrative, not a reliable policy. No central bank has an official mandate to prop up equity prices.
Investors hoping for a “Warsh put” today may be disappointed. The Fed’s primary focus remains inflation and employment, not stock market levels.
Expecting the Fed to save markets ignores how monetary policy actually works. Relying on that assumption carries significant risk.
