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Federal Reserve · Greenspan Put · Inflation · Interest Rates
The Federal Reserve raised interest rates by 0.75 percentage points for the second consecutive month, setting the federal funds target rate at 2.25% to 2.5%, while Chair Jerome Powell hinted at a slower pace of future increases but also warned of another unusually large rate rise.
This action signals the definitive end of the "Greenspan put," the historical market expectation of Fed intervention during downturns, according to MoneyWeek analysis. Former senior Federal Reserve trader Joseph Wang, cited by Bloomberg’s Odd Lots podcast, argues the Fed now possesses sufficient tools to prevent systemic crises, allowing it to prioritize inflation control over market stability.
Despite an initial market rally with the S&P 500 gaining 2.6% and the Nasdaq rising 4.1% following Powell's remarks, the author suggests this reaction is wishful thinking. The Fed's new market-agnostic stance implies continued tightening until inflation is genuinely subdued, potentially leading to more aggressive actions if markets do not align with this message.
This paradigm shift creates a different moral hazard, where the Fed believes it can raise rates without breaking the financial system.