Bernanke put
There is a widespread belief that the US central bank can always rescue the economy by decreasing interest rates. Since the current chairman is Ben Bernanke this is known as the 'Bernanke Put'
Following the dotcom crisis after which the then Federal Reserve chairman, Alan Greenspan, slashed the US Federal Funds rate in order to stimulate economic growth and stave off a recession, there has been a widespread belief that the US central bank can always rescue the economy by decreasing interest rates.
Since the current chairman is Ben Bernanke this is now known as the 'Bernanke Put' (named after 'put options' - derivatives that make money in falling markets). The theory is that if the central bank interest rate falls, other commercial banks should be able to lend more cheaply which in turn encourages their customers, namely companies and consumers, to borrow and spend thus rekindling growth.
The problem is that low interest rates also tend to stimulate price inflation and may encourage previously greedy borrowers to take on even more debt (the so-called 'moral hazard') so the central bank's 'put', if exercised, can be a very mixed blessing.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
![https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg](https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748-320-80.jpg)
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
-
Why Chinese stocks are so far out of favour
There’s little appetite for Chinese stocks despite low valuations.
By MoneyWeek Published
-
The 62 UK areas where you could be priced out of using your Lifetime ISA
Saving for your first home in Croydon, Ealing, Brent or any one of these other locations? You could be at risk of being priced out of using your Lifetime ISA
By Katie Williams Published
-
Margin call
Glossary When an investor borrows to bet on markets, they put down a deposit known as “margin”.
By MoneyWeek Last updated
-
Bond vigilantes
Glossary "If the fiscal and monetary authorities won't regulate the economy, the bond vigilantes will," says economist Ed Yardeni on Bloomberg...
By MoneyWeek Published
-
Greenspan put
Glossary A 'put' is a type of option contract that increases in value as the price of the underlying asset falls.
By MoneyWeek Published
-
Plaza Accord
Glossary The Plaza Accord was an agreement signed between the US, Japan, West Germany, France and the UK at the Plaza Hotel in New York in 1985.
By MoneyWeek Published