The Federal Reserve opened its wallet wide today in support the struggling economic recovery even while acknowledging it lacks the tools to solve the nation's high unemployment by itself.
Stock markets jumped on the Fed's policy moves, which generally exceeded economists' expectations of what policymakers would agree on -- and despite rising doubts that such efforts will do much to improve the economy but may pose future risks of inflation.
The Dow Jones industrial average was up 211.06 points, or 1.6 percent, at 13,544.41 in afternoon trading.
Fed Chairman Ben Bernanke, in a news conference following the announcement, said that the Fed's actions will support the recovery but won't be enough to fix high unemployment.
"I personally don't think it's going to solve the problem," Bernanke said.
He again urged Washington lawmakers to address the pending jump in taxes and drop in government spending currently set to begin on Jan. 1, which is generally described as a fiscal cliff. He previously said the cliff, if allowed to play out, could send the economy back into a recession.
"I don't think our tools are strong enough to offset a major fiscal shock," Bernanke said.
But, he said, the Fed has tools that will help and feels compelled to use them.
"It's a Main Street policy. What we're about here is trying to get jobs going," Bernanke said.
Policymakers -- with one dissenting vote -- announced they would buy $40 billion a month in securities backed by mortgages in an effort to lower long-term interest rates and mortgage rates specifically.
This third round of bond buying, referred to as quantitative easing, or QE3 in this case, is the first in which the Fed has tied its actions to improving economic conditions rather than a specific date in the future.
The Fed will keep buying mortgage bonds as long as "the outlook for the labor market does not improve substantially," its announcement said.
Today's policy statement also extended until mid-2015 how long the Fed will keep its key interest rate near zero. It had pledged in January to keep the rate near zero until late 2014.
The Fed also will continue an earlier policy called Operation Twist that specifically targets lowering long-term interest rates.
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