Federal Reserve to buy more debt to boost US economy
The US central bank has moved to kick-start economic recovery by restarting its policy of pumping money into the economy via quantitative easing.
The Federal Reserve said it will buy "additional agency mortgage-backed securities at a pace of $40bn (£25bn) per month".
Stock markets in the US and Asia jumped on the news, with European markets also expected to open higher on Friday.
The US economy is a pivotal issue in this year's US presidential election.
Interest rates in the US have been close to zero for several years now, and the Fed again kept them at below 0.25% on Thursday.
'Matter of time'
Fed chairman Ben Bernanke also lowered the Fed's growth forecast for the US economy to 2% this year, down from the 2.4% it predicted in June. But it expects growth to rebound in 2013 to as much as 3%.
"The committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labour market conditions," said the Fed.
The US central bank has tried to support the economy by quantitative easing - buying $2.3tn (£1.4tn) in bonds in two rounds.
For some analysts, the latest measures - dubbed "QE3" - were less than expected. But Q3 is to be an open-ended move, continuing until the employment market improves.
However, Paul Ashworth, an economist at Capital Economics, said: "We doubt it will be enough to get the economy on the right track. It's only a matter of time before speculation begins as to when the Fed will raise its purchases from $40bn a month."
The Fed's move sparked a jump on Wall Street markets, with the Dow Jones index closing up 1.55%. In Asia, Japan's Nikkei 225 index rose 1.8% and Hong Kong's Hang Seng added 2.5%.
The central bank calls its QE measures "asset purchases", where the central bank buys bonds to keep the long-term cost of borrowing down. The last round of asset purchases ended last year.
Mortgage-backed securities are debt backed by loans made to homeowners.
The unemployment rate in the US has been above 8% since January 2009, but the current 8.1% is down from the recent high of 10% in October 2009.
"To support continued progress toward maximum employment and price stability, the committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens," the Fed said.
The Fed also confirmed that its $267bn (£170bn) programme to reduce long-term borrowing costs for firms and households would continue for the rest of the year.
In a move dubbed "Operation Twist", the central bank buys longer-term bonds from retail lenders and swaps them for shorter-term bonds.