In Wall Street's eyes, it wasn't a pretty January for Alan Greenspan when the towering central banker seemed fickle about the economic outlook and appeared to fumble in conveying his famously enigmatic message to financial markets.
But the Fed chief regained his golden touch in testimony to Congress on Wednesday, striking just the right tone of guarded optimism that boosted both bond and stock markets in the equivalent of a central banker's home run.
"He did a very masterful job of walking the tightrope," said Steve Richiutto, chief US economist at ABN AMRO.
He faced the delicate task of buttressing business and consumer confidence in a recovery without sounding so upbeat that the bond market would anticipate imminent interest rate hikes, driving long-term interest rates higher.
Greenspan struck the right balance in saying economic activity is improving, but that a recovery would likely be moderate and there was little worry about inflation.
Stocks initially surged on the positive half of his message, while bond traders seized on his caution as a signal that interest rates won't be rising off 40-year lows anytime soon.
Benchmark Treasury yields fell close to three-month lows, with lower market rates helping keep downward pressure on the cost of loans for homes and other big-ticket items -- just what the Fed would like to see to nurture the budding recovery.
Back in January, Greenspan was more muddled than usual.
During a speech in San Francisco on Jan. 11, Greenspan warned that the economy still faced "significant" near-term risks.
That unexpectedly sober assessment sent stock prices falling and blindsided a bond market which was looking for confirmation that the Fed had brought an aggressive interest rate cutting cycle to a close.
"I don't know if I misinterpreted it, but he did have a few sentences in there that did suggest to me that he was leaning toward another ease. And then he did a do-over," said Paul Kasriel, chief US economist at Northern Trust in Chicago.
Less than two weeks later, the central banker sang a different tune, telling the Senate the economy appeared to be turning a corner, driving stock prices higher and prompting bond markets to rein in their rate cut hopes.
The Fed ended up leaving rates unchanged at its late-January meeting.
"I was surprised. The guy knows that market participants and analysts are going to really hang on every word and diagram every sentence," Kasriel said.
But Greenspan set his record straight on Wednesday, largely sticking to his late-January message while also playing down the accounting worries that had plagued stock markets in recent weeks since the collapse of Enron Corp.
"Greenspan provided fodder for both the equity market and the bond market today by striking a balance between optimism and caution on the economic outlook," said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co in New York.
The benchmark 10-year Treasury note closed up 24/32 at 100-10/32, sending their yields falling 0.1 percentage point to 4.83 percent.
The Dow Jones industrial average rallied as much as 1 percent before profit taking set in, with the index ending up 0.12 percent at 10,128.