Fed’s William Dudley Sees Impediment in Mortgage Bond, Rate Spreads

Federal Reserve Bank of New York president William C. Dudley said the widened yield differential between mortgage-backed securities and primary home-loan rates poses an “impediment” to monetary stimulus.

“For monetary policy to be as effective as possible in supporting economic recovery in a context of price stability, it is imperative that the key channels of the monetary policy transmission mechanism are operating as effectively as possible,” Dudley said in the text of opening remarks at a workshop on mortgage rates held at the New York Fed today.

“It is important that we correctly identify and to the greatest extent possible quantify the forces that have been acting on the primary-secondary spread,” he said.

Dudley said there’s still “solid evidence” that the Fed’s third round of asset purchases is “effective” because bond yields have fallen since the program was announced in September.