After the FOMC issued its statement yesterday, the S&P which had been down almost 2 percent rose about 6 percent to close up for the day by about 4 percent. Presumably, this allayed fears that the Fed would passively allow inflation and NGDP to keep falling. For the day, the TIPS spread depending on which measure you look at was constant or rose slightly. However, the yield on Treasuries dropped by 20 basis points on both the 5- and 10-year bonds. So the real yield dropped by 20 basis points or so, which says that profit expectations are falling or perceived uncertainty is rising. Nevertheless, the mild and not very helpful statement was at least able to stop the bleeding. NPR says that Dow futures are down 1 percent before the market opens in a half an hour. I am not at all sure that the FOMC statement will be enough to turn the tide. But I also thought that Bernanke’s Jackson Hole speech last August would not do the trick, and it in fact did succeed in turning things around (for a while). Hold on to your hats.
PS Does anyone know by how much the yields on the 5- and 10-year Treasuries and TIPS changed after the FOMC press release?