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"Monetary policymakers need to take the evolution of financial
conditions into consideration," New York Fed President William
Dudley, a permanent voter on U.S. interest rates and a close
ally of Fed Chair Janet Yellen, said on a closed-to-the-press
panel on Sunday.
"When financial conditions ease, as has been the case recently,
this can provide additional impetus for the decision to continue
to remove monetary policy accommodation," he said according to
prepared remarks published by the New York Fed.
The Fed has raised rates three times since December and aims to
begin shedding some of its $4.5 trillion in bond holdings later
this year. Yet financial markets have not tightened as much as
some expected, with equity indexes regularly logging new records
and the 10-year Treasury bond rate declining since March.
Dudley has repeatedly warned that the Fed would raise rates more
aggressively if financial conditions did not tighten as desired,
and vice versa.
Turning to the Fed's plan to shed bonds, Dudley noted that
Treasury and mortgage-backed bond markets have reacted little.
"To me, this suggests that these communications have generally
been effective in fostering an orderly adjustment in
expectations about how we are likely to normalize our balance
sheet," he said on the panel in Basel.
(Reporting by Jonathan Spicer; Editing by Nick Zieminski)
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