Dudley, William

Today, though, we are focusing on a second impediment to the impact of monetary policy on the economy through housing and mortgage finance: the significant widening of the spread between yields on mortgage-backed securities in the secondary market and primary mortgage rates. 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.