NEW YORK--A central bank official at the heart of the monetary policy-making process said on Sunday that the Federal Reserve must consider the state of financial markets when making monetary policy.
The policy maker, Federal Reserve Bank of New York President William Dudley, didn't directly address the current state of the U.S. economy and monetary policy in his speech.
Nevertheless, the official's comments on the relationship between the central bank and markets, as well as the arc of monetary policy over the course of recent years, suggests Mr. Dudley still sees broad scope for aggressive Fed policy actions.
In his remarks, Mr. Dudley explained the Fed must take account of the state financial markets are in when deciding what level of monetary policy to apply to the economy.
He indicated that when markets are impaired the Fed may need to provide more stimulus than would traditionally be the case. "The stance of monetary policy needs to be judged in light of how well the transmission channels of monetary policy are operating," Mr. Dudley said.
"When financial instability has disrupted the monetary policy transmission channels, following simple rules based on long-term historical relationships can lead to an inappropriately tight monetary policy," he said.
When markets are troubled, Fed policy "may need to be more accommodative than otherwise in order to achieve its objectives." As he has said in past remarks, Mr. Dudley warned that it is likely that the Fed has not been aggressive enough in its response to a weak economy where he acknowledges the Fed has failed to achieve either its jobs or inflation goals.
"With the benefit of hindsight, U.S. monetary policy, though aggressive by historic standards, was not sufficiently accommodative relative to the state of the economy," Mr. Dudley said.
Mr. Dudley's speech was delivered Sunday at a gathering on the Bank for International Settlements in Basel, Switzerland.
The text of the speech was posted to the New York Fed's website Monday morning. The central banker spoke in the wake of last week's Fed meeting.
In the wake of that gathering, where officials suggested that at some point over coming months the Fed is likely to pare back its bond buying stimulus efforts, financial markets have undergone a broad convulsion.
Stock prices have fallen, and bond yields have risen, which collectively are in the process of creating tighter financial conditions, which could weigh on growth.
The Fed has indicated that any tightening in monetary policy still lies well off into the future, but markets have been acting as if the unwinding of the central bank's massive campaign of stimulus is finally taking place.
nasdaq.com
The policy maker, Federal Reserve Bank of New York President William Dudley, didn't directly address the current state of the U.S. economy and monetary policy in his speech.
Nevertheless, the official's comments on the relationship between the central bank and markets, as well as the arc of monetary policy over the course of recent years, suggests Mr. Dudley still sees broad scope for aggressive Fed policy actions.
In his remarks, Mr. Dudley explained the Fed must take account of the state financial markets are in when deciding what level of monetary policy to apply to the economy.
He indicated that when markets are impaired the Fed may need to provide more stimulus than would traditionally be the case. "The stance of monetary policy needs to be judged in light of how well the transmission channels of monetary policy are operating," Mr. Dudley said.
"When financial instability has disrupted the monetary policy transmission channels, following simple rules based on long-term historical relationships can lead to an inappropriately tight monetary policy," he said.
When markets are troubled, Fed policy "may need to be more accommodative than otherwise in order to achieve its objectives." As he has said in past remarks, Mr. Dudley warned that it is likely that the Fed has not been aggressive enough in its response to a weak economy where he acknowledges the Fed has failed to achieve either its jobs or inflation goals.
"With the benefit of hindsight, U.S. monetary policy, though aggressive by historic standards, was not sufficiently accommodative relative to the state of the economy," Mr. Dudley said.
Mr. Dudley's speech was delivered Sunday at a gathering on the Bank for International Settlements in Basel, Switzerland.
The text of the speech was posted to the New York Fed's website Monday morning. The central banker spoke in the wake of last week's Fed meeting.
In the wake of that gathering, where officials suggested that at some point over coming months the Fed is likely to pare back its bond buying stimulus efforts, financial markets have undergone a broad convulsion.
Stock prices have fallen, and bond yields have risen, which collectively are in the process of creating tighter financial conditions, which could weigh on growth.
The Fed has indicated that any tightening in monetary policy still lies well off into the future, but markets have been acting as if the unwinding of the central bank's massive campaign of stimulus is finally taking place.
nasdaq.com
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