WASHINGTON (Sept. 13, 2012) — To promote economic recovery and keep inflation in check, the Federal Reserve will purchase $40 billion of mortgage-backed securities per month, according to a statement from the Fed's Federal Open Market Committee (FOMC).
The FOMC said it will also maintain its policy of reinvesting principal payments from its holdings of agency debt and mortgage-backed securities in more mortgage-backed securities. These actions will ensure FOMC purchases of some $85 billion of securities every month through the year-end.
This in turn should put downward pressure on long-term interest rates, support mortgage markets and help improve broader financial conditions, the committee said.
The FOMC voted to keep the target range for the federal funds rate—the interest rate at which banks lend to other banks—at zero to ¼ percent. It said it expected market conditions to warrant keeping the federal funds rate at the lowest possible level through mid-2015.
As of 2:30 p.m. today, the Dow Jones Industrial Average had risen 230 points on word of the Fed's announcement.