Here's an interesting weekend read arguing that the stock market correction makes a September Federal Reserve hike "more compelling", not less.
- "because it gives Fed Chair Janet Yellen the opportunity she needs to kill the "Greenspan put" once and for all"
The argument made is that extraordinarily low interest rates for an extremely long time breeds a complacent belief that the Fed is guaranteeing equities and bonds ... a belief the Fed wants to dispel.
- The point of easy monetary policy isn't to goose the stock market as an end unto itself ... The Fed wants businesses to invest in the future, which means investors need to put their money into productive investments instead of riskless Treasuries
(And, by extension, a complacent belief in 'riskless' equities)
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In (very) brief, the 'Greenspan put' (or the 'Bernanke put', or, more generally, the 'Fed put') is the belief that the Federal Reserve will lower the Fed Funds interest rate if the stock market drops, thereby encouraging a movement out of fixed interest instruments into equities, and providing the stock market with a boost.
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OK ... I think the argument has a lot going for it. But, I'd be concerned about putting too much trust in the bravery of the Federal Reserve to just go ahead and do it. St. Louis Fed President James Bullard has even told Reuters the Committee would be hesitant to hike if global markets continued to be volatile in mid-September.
Which rather sounds like not wanting to end the Fed Put at all, yeah?
