While there is “solid evidence” that the Fed’s monthly purchases of $40 billion in housing debt have been effective in lowering yields, “the impact of monetary easing on the economy through housing and mortgage finance has been impeded to some degree,” Dudley said Monday in opening remarks at a workshop on mortgage rates held at the New York Fed.

For the Fed’s stimulus to achieve its “full impact,” he said, lower yields on mortgage-backed securities must pass through to interest rates on home loans. “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.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

The central bank announced its third round of large-scale asset purchases in September in a bid to boost growth and reduce unemployment stuck near 8 percent three years into the expansion. Dudley said last week he is focusing on elevated joblessness as he considers whether the Fed should increase its asset purchases.

“The unemployment rate remains unacceptably high,” Dudley said today. The policy-setting Federal Open Market Committee, which meets Dec. 11-12, “will continue its purchases of agency MBS, undertake additional asset purchases and employ its other tools as appropriate until there is a substantial improvement in the outlook for the labor market in a context of price stability.”

Stocks, Bonds

Stocks trimmed early gains after a report showed manufacturing unexpectedly shrank in the U.S. last month. The Standard & Poor’s 500 Index rose 0.2 percent to 1,418.95 at 10:11 a.m. in New York after climbing as much as 0.5 percent. Treasury 10-year note yields climbed two basis points, or 0.02 percentage point, to 1.64 percent in New York trading, according to Bloomberg Bond Trader data.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.