I basically welcome the dovish comments today from New York Federal Reserve Bank President William Dudley, but I do wish the sensible center Dudley/Bernanke/Tarullo bloc on the Fed would read their own statements more carefully:
“Clearly we’ve indicated our interest in supporting the housing market in keeping mortgage rate spreads, and spreads between mortgage rates and Treasury yields, from getting too elevated,” Dudley said.
“Depending on how the world evolves, we potentially could move to do more in that direction.”
Dudley, who as head of the New York Fed has a permanent voting seat on the Fed’s policy-setting committee, said the U.S. central bank will continue to do everything within its power to help the economic recovery.
If the Fed “will continue to do everything within its power,” that implies that they’re currently doing everything within their power. But if they “potentially could move to do more,” then they’re not currently doing everything within their power. They need to resolve this contradiction by actually starting to do everything within their power to help the recovery. They need to put themselves in a position where if somehow the recovery is still weak, their only answer is “there’s nothing more we can do. It’s just not possible.”