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Fed takes risky step to bolster economy

Washington - The Federal Reserve launched a fresh effort to support a struggling US economy on Wednesday, committing to buy $600bn in government bonds despite concerns the program could do more harm than good.

The decision takes the Fed into largely uncharted waters and is aimed at further lowering borrowing costs for consumers and businesses still suffering in the aftermath of the worst recession since the Great Depression.

The US central bank said it would buy about $75bn in longer-term Treasury bonds per month through the end of June 2011 and could adjust purchases depending on the strength of the recovery.

"The economy is slowly digging itself out of a deep hole," said Brian Bethune, economist at IHS Global Insight in Lexington, Massachusetts. "The Fed is making the right moves here to nudge the pace up a little," he said.

Critics within and outside the central bank fear the Fed's policy will lead to high inflation and worry that low interest rates in the United States risk fueling asset bubbles in other countries and destabilizing currencies.

But with the US economy expanding at only a 2.0% annual pace in the third quarter of this year and the jobless rate seemingly stuck around 9.6%, the Fed had come under pressure to do more to stimulate business activity.

The overall size of the bond buying program was slightly larger than the $500bn that many analysts had looked for, though the pace of monthly buying fell short of expectations for something around $100bn.

Market reaction was initially volatile but at the end of the day left the recent uptrend in stocks and downtrend in the US dollar intact.

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