WASHINGTON — The Federal Reserve unleashed a series of bold and open-ended steps Thursday designed to stimulate the economy by boosting the stock market and making it cheaper for people to borrow and spend.
The Fed said it will spend $40 billion a month to buy mortgage bonds for as long as it deems necessary to make home buying more affordable. It plans to keep short-term interest rates at record lows through mid-2015 — six months longer than previously planned. And it’s ready to try other stimulative measures if hiring doesn’t pick up.
“The idea is to quicken the recovery,” Chairman Ben Bernanke said at a news conference. But Bernanke made clear that he thinks the economy will need the Fed’s help even after the recovery strengthens.
The Fed’s policy committee announced the aggressive actions after a two-day meeting. Its moves pointed to how sluggish the U.S. and global economies remain more than three years after the Great Recession ended.
Thursday’s announcement marked the Fed’s latest dramatic intervention since the financial crisis erupted in 2008 and the Great Recession shot unemployment into double digits. The Fed cut its benchmark short-term rate to near zero and has kept it there for nearly four years. And it’s bought more than $2 trillion in Treasurys and mortgage bonds to try to drive down long-term rates.
Yet for all that, the U.S. economy is still struggling. The unemployment rate is 8.1 percent. And the Fed estimated Thursday that the rate will fall no lower than 7.6 percent in 2013.
A report Thursday showed the number of Americans seeking unemployment benefits jumped to the highest level in two months, although the figures were skewed in part by Hurricane Isaac. It disrupted work in nine states and boosted applications by roughly 9,000, the Labor Department said.
In all, though, applications increased by 15,000 to a seasonally adjusted 382,000. That’s up from 367,000 the previous week. The four-week average, a less volatile measure, increased for the fourth straight week to 375,000.
The Fed’s latest actions come a week after the European Central Bank announced its most ambitious plan yet to ease Europe’s financial crisis by buying unlimited amounts of government bonds to help countries manage their debts.
The Fed on Thursday also lowered its outlook for economic growth this year, though it’s more optimistic about the next two years. It expects growth to be no stronger than 2 percent this year. That’s down from its forecast of 2.4 percent in June.
It thinks the unemployment rate will be no lower than 6.7 percent in 2014. It also expects inflation to remain at or below 2 percent for three more years.
A report Thursday showed the producer price index, which measures price changes before they reach the consumer, jumped 1.7 percent in August. The Labor Department said the increase was mostly because gasoline prices soared 13.6 percent, the biggest gain in three years.
Excluding the volatile gas and food, core wholesale prices rose only 0.2 percent, below July’s increase. In the past 12 months, wholesale prices have increased 2 percent, a mild gain and far below the recent peak of 7.1 percent in July 2011.
At his news conference, Bernanke made clear that higher stock prices are among the Fed’s goals in buying bonds. Bernanke noted that stock gains increase Americans’ wealth and typically lead individuals and businesses to spend and invest more.
But some economists said they thought the benefit to the economy would be slight.
“We doubt it will be enough to get the economy on the right track,” said Paul Ashworth, an economist at Capital Economics. “It’s only a matter of time before speculation begins as to when the Fed will raise its purchases from $40 billion a month.”
The Fed’s ability to increase home buying might be limited even if its bond purchases help lower mortgage rates. The average rate on a 30-year fixed mortgage is 3.55 percent. That’s barely above the record low of 3.49 percent set in July.
While the U.S. housing market has improved, it has a long way to go to reach a full recovery. Some economists forecast that sales of previously occupied homes will reach about 4.6 million. That’s well below the 5.5 million annual sales pace considered healthy.
Bernanke himself sought to lower expectations about how much the Fed’s intervention might help the economy.
“We’re just trying to get the economy moving in the right direction, to make sure that we don’t stagnate at high levels of unemployment,” he said at the news conference. “All that being said, monetary policy, as I’ve said many times, is not a panacea.”
The Fed’s new bond purchases, which will start Friday, amount to less per month than either of its first two bond programs. But by committing to buying bonds indefinitely, the Fed is seeking to assure investors and consumers that borrowing will remain cheap far into the future.
“In many ways, today’s actions represent the beginning of a new phase in Bernanke’s efforts to get the economy moving again,” said Michael Feroli, an economist at JPMorgan Chase Bank.
Some economists suggested that the Fed might continue to buy $40 billion a month in mortgage bonds for up to three years. That’s how long some expect it will take for the unemployment rate to dip below 7 percent, toward a “normal” rate of 6 percent or less.
Still, skeptics caution that further bond buying might provide little economic benefit because rates are already near record lows. Critics also warn that more bond purchases raise the risk of higher inflation later.
The Fed is under pressure to act because the U.S. economy is still growing too slowly to reduce high unemployment. The unemployment rate has topped 8 percent every month since the Great Recession officially ended more than three years ago.
Bernanke spotlighted the problem of chronic high unemployment in a speech to an economic conference in Jackson Hole, Wyo., late last month. He argued that bond purchases and other unorthodox Fed actions had helped ease borrowing costs and boosted stock prices.