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Dudley Says Fed Tightening May Shed Light on Liquidity Situation

  • Evidence that bond market liquidity has dried up mixed at best
  • Some signs that liquidity risk may have increased, Dudley says

The U.S. central bank’s massive purchases of bonds that began in 2008 to support the economy may be obscuring metrics used to measure bond market liquidity, said New York Federal Reserve President William C. Dudley.

“Unconventional monetary policy may have affected recent measures of liquidity in ways that could make it more difficult to clearly discern any potential changes,” Dudley said Wednesday in remarks prepared for a speech in New York. “To the extent that this may be the case, then a clearer picture on liquidity conditions may only emerge as monetary policy is normalized."