Fed launches big stimulus, to buy bonds until jobs rebound

The Federal Reserve launched another aggressive stimulus program on Thursday, saying it will buy $40 billion of mortgage debt per month and continue to purchase assets until the outlook for jobs improves substantially.

In a significant shift in the direction of U.S. monetary policy, the Fed has tied its unconventional bond buying directly to economic conditions, a move that is likely to be controversial among central bank critics.

"If the outlook for the labor market does not improve substantially, the committee will continue its purchase of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability," the Fed said in a statement.

In an additional step that reflects just how concerned Fed officials have become about the health of the economy, policymakers said they would not likely raise rates from current rock-bottom lows until at least mid-2015. Previously, it had set such guidance at late 2014.

The decision comes in the face of widespread questions about the likely effectiveness of a further foray into unorthodox monetary policy, including from Republican presidential nominee Mitt Romney.

The latest purchases build on the $2.3 trillion in U.S. government and housing-related debt the Fed has already bought.

The new move is even bolder than many investors had anticipated given its open-ended nature and clear links to unemployment.

COOLER GROWTH

U.S. economic growth cooled in the second quarter, coming in at a tepid 1.7 percent annual rate, and forecasters do not believe it is doing much better now.

The economy created just 96,000 jobs last month, less than needed to keep up with population growth. While the unemployment rate edged down to 8.1 percent it was only because so many Americans gave up on the search for work.

At 2 p.m. (1800 GMT), the Fed will provide fresh forecasts that could show softer projections for economic growth and higher unemployment, which would help provide a rationale for its decision.

Fed Chairman Ben Bernanke will discuss the decision during a news conference at 2:15 p.m. (1815 GMT).