The Fed released comments of Dudley’s speech in Basel yesterday and that has coincided with the turnaround in the dollar. He said policy can’t work without financial stability and that the Fed should act to mitigate financial instability.
The headline-readers are taking that to mean the Fed should act to calm markets at the moment but the text of the speech doesn’t say that.
“Financial instability can impair the linkage between monetary policy and financial conditions,” Dudley said. “The central bank may move to a much more accommodative monetary policy stance, but this may not lead to much improvement in financial conditions.”
