The Fed can do more to help the economy and buying mortgage-backed securities could be a good start, since it would boost the beleaguered housing market, William Dudley, president of the Federal Reserve Bank of New York, said Thursday.
Because monetary policy is restrained in its ability to assist the economy since its funds rate target is near zero, the Fed has “to rely on other, less efficient means, to put further downward pressure on longer-term borrowing costs,” thereby making it “progressively more difficult to induce households with low debt to bring forward consumption,” Dudley said.
“If additional asset purchases were deemed appropriate, it might make sense to do much of this in the mortgage-backed securities market,” he said.
“This would have a greater direct impact on the housing market and would be less likely to disrupt market functioning” than would further Treasury purchases, Dudley added.
