The dog that didn’t bark in the night in Wednesday’s dog of a market was US real Treasury yields, the safe haven of choice during stock market crashes.

Real yields rose as stocks crashed after Federal Reserve Chairman Jerome Powell and other Fed officials warned that monetary policy couldn’t get the US economy out of what the Cleveland Fed president called a “deep hole.”

Don’t look at us, the Fed officials said in so many words. The US economy needs more fiscal stimulus from Congress. But Congress is deadlocked over a new spending bill in the advent of the November elections.

The 10-year inflation-protected Treasury yield rose 2.4 basis points while the S&P 500 fell by 2.37% and the NASDAQ lost 3.02%, bringing the S&P within a hair’s breadth of a correction and pushing tech stocks well into a correction.

Gold fell by $38 and the dollar rose. Investors liquidated assets – stocks, bonds, currencies and commodities – in favor of cash, rather than seeking shelter in traditional hedges such as inflation-indexed bonds.

With short-term rates trading at close to zero, and expected to remain close to zero for the indefinite future, the Fed faces a dilemma.

It can’t loosen monetary policy any further without taking rates into negative territory, as the European Central Bank has done for years. Negative rates have had little success in reviving economic activity overseas, and create all sorts of perverse effects.

The market isn’t convinced that the Fed will cross the zero line, which means that monetary policy may not come to the market’s rescue.

Boston Federal Reserve Bank President Eric Rosengren was the grimmest of the Federal Reserve officials who gave scheduled remarks today.

“Recent economic data have been encouraging, but I believe the most difficult part of the recovery is still ahead of us,” Rosengren said. “A structural shock, like the pandemic, can result in a significant increase in the number of nonperforming loans, eventually impinging the ability of banks and insurance companies to continue to make credit available to borrowers.”

Especially worrying was the refusal of US banks to participate in the Fed’s $600 billion Main Street lending facility, which targets small business. Only a tiny fraction of the facility has been used so far.

The number of US small businesses in operation has fallen by 24% since January 20, according to an estimate by, and small business revenues are down by 21%.

Starting in March 2020, the Federal Reserve nearly doubled the size of its balance sheet, purchasing $3 trillion worth of assets. It probably won’t cut interest rates, but it will continue to expand its security purchases to support the economy. Loose monetary policy will continue to weigh on the US dollar, and the gold price drop presents a buying opportunity for investors