Fed Put

The Fed Put refers to the market belief that the Federal Reserve (the U.S. central bank) will intervene—typically by lowering interest rates or providing liquidity—whenever financial markets experience significant declines. The term “put” comes from options trading, where a put option gives investors the right to sell an asset at a predetermined price, effectively offering downside protection. Similarly, the “Fed Put” suggests that the Fed provides an informal safety net for investors, preventing severe market losses.

Origins and Meaning:

The concept emerged in the 1980s and 1990s, especially under Fed Chair Alan Greenspan, who cut rates during market downturns, such as after the 1987 stock market crash.
Investors began to assume that the Fed would act to support asset prices whenever markets became too volatile or fell sharply, reducing perceived risk.

Implications:

It can lead to moral hazard, where investors take on more risk, expecting the Fed to bail out markets.
The belief in the Fed Put can inflate asset bubbles, as markets grow overly dependent on monetary support.
Critics argue it undermines the Fed’s focus on inflation and employment by making financial markets a third, unofficial mandate.

While the Fed does not officially endorse this policy, its history of interventions—such as during the 2008 financial crisis or the COVID-19 pandemic—reinforces investor expectations that the central bank will step in to stabilize markets in times of stress.

Information on Other Interactive Brokers Affiliates

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Interactive Brokers India Pvt. Ltd.

Interactive Brokers Securities Japan Inc.

Interactive Brokers Singapore Pte. Ltd.

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