The Bond Bubble – How Long Before It Bursts

The central bank also said it was boosting its purchases of mortgage securities by 750 billion dollars, bringing its total to 1.25 trillion dollars this year as part of a wide-ranging effort to revive the sagging US economy.

The announcement was made at the end of a two-day meeting by the Federal Open Market Committee, which kept its base lending rate in a range of zero to 0.25 percent.

“In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability,” the FOMC statement said.

The Fed, which had been expected to keep its federal funds rate unchanged, said it “anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

The US central bank will effectively be printing massive amounts of money for these purchases to help foster recovery in the recession-mired economy, which shrank at a 6.2 percent pace in the last quarter of 2008.