Fed to buy up to $300B long-term Treasury bonds; rates left near zero

WASHINGTON -- The Federal Reserve Wednesday announced a series of far-reaching steps to bolster the staggering economy; expanding a series of historic lending and asset purchase programs by more than $1.1 trillion, including buying up to $300 billion in U.S. long-term Treasury securities.

The unexpected aggressiveness of the Fed move, and the central bank's decision to buy Treasury securities in the first concerted government effort to influence long-term interest rates since the 1960s, boosted the stock market. Treasury rates fell.

The Fed's policymaking Open Market Committee, which voted unanimously for the moves, called them necessary because the economy continues to be pummeled by "job losses, declining equity and housing wealth and tight credit conditions."

"Although the near-term economic outlook is weak, the (Fed) anticipates that policy actions ... will contribute to a gradual resumption of stable economic growth," the Fed said.

The central bank also is concerned about the possibility of deflation, a widepread sustained decline in prices that would further destabilize an already weakened economy. The Fed noted "some risk that inflation could persist for a time below rates that best foster economic growth and price stability."

The central bank also said it will hold the federal funds rate at the low level of zero to a quarter-percent, "for an extended period." The funds rate has essentially been at zero since December. The rate, what banks charge each other for overnight loans, is a benchmark for many consumer and business loans.

Economists and analysts generally applauded the Fed move, though noted the decision to buy Treasury securities came shortly after Fed Chairman Ben Bernanke and New York Fed President William Dudley said they would prefer instead to concentrate on reviving select credit markets.

In effect, the Fed is implementing several policies at the same time. It is going all out on so-called quantitative easing — essentially printing huge amounts of money to spur activity and reflate the economy. At the same time, the Fed is basically committing to buy mortgage-backed bonds to bring down mortgage rates and stabilize the housing industry.