BOSTON — Boston Federal Reserve President Eric Rosengren said Thursday that the last central bank's policy actions removed some uncertainty in the market about the Fed's plans to help the economy, hoping "it will work."
Rosengren also said in a question-and-answer session following a speech to a suburban Boston business group that low inflation gives the central bank the flexibility to be "more forceful" in addressing the unemployment issues.
"The early signs are that (the new policy is) moving in the direction we had actually hoped," he said.
The Fed's policymaking Federal Open Market Committee announced last Thursday that in addition to its maturity extension program, it will buy $40 billion in mortgage-backed securities a month until it sees a significant improvement in the labor market. It also pushed out its forward guidance -- how long it expects interest rates to remain close to zero -- to mid-2015 from late-2014.
"In discussions with business people in the last several days, I am seeing some renewed confidence," Rosengren told the South Shore Chamber of Commerce during an Economic Outlook Breakfast.
The Boston Fed chief added that word of the Fed's new policy removed some uncertainty in the market about what the central bank plans to do to address the nation's weak recovery and 8.1% unemployment rate.
"It says that Federal Reserve is being serious about making sure that we don't stay in a stagnant economy and will continue to purchase (long-term debt) to make sure that doesn't happen," Rosengren said. "I think that's a positive sign for the housing sector, the corporate sector -- many different sectors in the economy. And hopefully, it will work."
Rosengren said the central bank has room to expand its balance sheet because inflation as measured by the Personal Consumption Index remains about 0.2% below the Fed's 2% target.
"Having the inflation rate low gives us the flexibility to be more forceful than we might otherwise have been in dealing with the unemployment issue," he said.
Earlier in his speech,, the central bank's recently announced plans to make ongoing purchases of long-term U.S. debt carries some risks, but is worth trying because it should help lower America's jobless rate.
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