WASHINGTON — The Federal Reserve unleashed a series of bold and open-ended steps Thursday designed to stimulate the economy by boosting the stock market and making it cheaper for people to borrow and spend.
The Fed said it will spend $40 billion a month to buy mortgage bonds for as long as it deems necessary to make home buying more affordable. It plans to keep short-term interest rates at record lows through mid-2015 — six months longer than previously planned. And it's ready to try other stimulative measures if hiring doesn't pick up.
"The idea is to quicken the recovery," Fed Chairman Ben Bernanke said at a news conference. But he made clear he thinks the economy will need the Fed's intervention even after the recovery strengthens.
Stock prices rose steadily after the Fed's announcement with the Dow closing up more than 200 points to 13,539.86.
At his news conference, Bernanke made clear that higher stock prices are among the Fed's goals in buying bonds. Bernanke noted that stock gains increase Americans' wealth and typically lead individuals and businesses to spend and invest more.
The new purchases, which will start Friday, amount to less per month than either of its first two bond programs. But by committing to buying bonds indefinitely, the Fed is seeking to assure investors and consumers that borrowing will remain cheap far into the future.
But some economists said they thought the benefit to the economy would be slight.
"We doubt it will be enough to get the economy on the right track," said Paul Ashworth, an economist at Capital Economics. "It's only a matter of time before speculation begins as to when the Fed will raise its purchases from $40 billion a month."