New York Federal Reserve Bank President William Dudley Monday called attention to the impediment that significant widening of the spread between yields on mortgage-backed securities in the secondary market and primary mortgage rates is posing to the Fed's drive to boost growth through housing.
"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 opening remarks at 'The Spread between Primary and Secondary Mortgage Rates: Recent Trends and Prospects' Workshop.
"Actions taken by the FOMC such as its MBS purchase program operate principally on the secondary rate. For these actions to achieve their full impact, reductions in the secondary rate need to also pass through to the primary rate. To the extent that the primary-secondary rate spread widens the reduction in pass-through limits the full impact of the policy actions," he said.
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