By Jonathan Spicer
(Reuters) - Monetary policies may need to be "more accommodative than otherwise" in the wake of financial crises that impair a central bank's ability to nurture the real economy, an influential Federal Reserve policymaker argued on Monday.
In his first public comments since the Fed last week unveiled a plan for reducing its stimulative asset purchases, New York Fed President William Dudley said the U.S. central bank must consider financial instability when formulating its policies.
Dudley did not comment specifically on the Fed's current policy stance, instead speaking more generally about the intersection of financial regulation and monetary policy.
"The stance of monetary policy needs to be judged in light of how well the transmission channels of monetary policy are operating," Dudley said in a speech in Basel, according to prepared remarks.
"When financial instability has disrupted the monetary policy transmission channels, following simple rules based on long-term historical relationships can lead to an inappropriately tight monetary policy."
The Fed set off waves of selling in the world's financial markets when Chairman Ben Bernanke said on Wednesday the central bank expected to reduce its bond-buying later this year and halt the stimulus program altogether by mid-2014, if the economy improves as forecast.
Dudley is a close ally of Bernanke and a strong backer of the Fed's unprecedented efforts to accelerate the U.S. recovery from the 2007-2009 financial crisis and recession.
On Monday, he repeated that the Fed has fallen short of its employment and inflation objectives.
"This suggests that with the benefit of hindsight, U.S. monetary policy, though aggressive by historic standards, was not sufficiently accommodative relative to the state of the economy," he said.
"In this regard, I would caution against the mechanical use of monetary policy rules following a financial crisis."
(Reporting by Jonathan Spicer; Editing by James Dalgleish and Chizu Nomiyama)