US Fed to pump $40bn a month into US economy

The US Federal Reserve has announced it will pump in US$40bn a month (€31bn) to bolster the world's biggest economy.

The latest round of so-called quantitative easing will continue until the US's ailing jobs market shows signs of substantial improvement, the bank said.

Interest rates, close to zero for several years now, will be kept at record-low levels until mid-2015.

The economy boosting measure, dubbed QE3, sent stocks higher on Wall Street.

The Dow Jones Industrial Average rose nearly 90 points, 0.7%, after the announcement which comes after a two-day meeting by the US central bank.

The Fed said the US economy was too weak to reduce high unemployment without support.

It will buy mortgaged-back securities under the QE3 plan, which will continue as long as necessary, according to the Fed.

The Fed said: "If the outlook for the labour market does not improve substantially, the committee will continue its purchases 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 added that "strains in global financial markets continue to pose significant downside risks to the economic outlook" in a sign of mounting concerns over the eurozone crisis and a weakening Chinese economy.

The QE3 bond purchases are designed to lower long-term interest rates to spur borrowing and spending.

The Fed - headed by chairman Ben Bernanke - has previously launched two rounds of QE, buying two trillion dollars (€1.55 trillion) in Treasury bonds and mortgage-backed securities since the 2008 financial crisis.

With less than eight weeks left until the US presidential election, the economy remains the top issue on most voters' minds.

Craig Erlam, market analyst at Alpari, said stock market attention will now turn to the "other" policy tools the Fed said it was prepared to use.

"This is likely to leave us on the edge of our seats until the next meeting in October in the hope that we'll see the QE3 program we expected today - this is likely to keep the market rallying until then," he said.

The Fed is under pressure to act because the US economy is still growing too slowly to reduce high unemployment.

The unemployment rate has come in higher than 8% every month since the Great Recession officially ended more than three years ago.

In August, jobs growth slowed sharply, with employers adding just 96,000 jobs down from 141,000 in July and well below what is needed to bring relief to the more than 12 million who are unemployed.