The US Federal Reserve said it would begin funneling proceeds from its maturing mortgage bonds into longer-term government debt in an effort to support a sputtering economic recovery.
The Fed, which left benchmark overnight interest rates steady in a zero to 0.25% range, also renewed its pledge to keep them low for an extended period, as widely expected.
The decision to reinvest mortgage bond proceeds represents a significant policy shift for the Fed that just a few months ago had been avidly debating an exit strategy from the extraordinary stimulus delivered during the financial crisis.
Today's move was somewhat surprising. Although many analysts and investors had expected the Fed to announce it was reinvesting the mortgage proceeds, most had thought it would buy more mortgage debt instead of government bonds.
In a statement at the end of a one-day meeting, Fed officials also offered a more gloomy outlook for the economy, saying the recovery in output and employment 'has slowed in recent months'.
When it last met in late June, it said the recovery was 'proceeding'.
Data has been decidedly weak since the US central bank's last meeting in late June. Consumer spending has softened and manufacturing appears to be losing steam. The unemployment rate, meanwhile, is stuck at 9.5%.
With US interest rates already effectively at zero, the central bank has run out of easy policy options. Top Fed officials argue, however, they can do more to fight renewed economic weakness, including reinvesting proceeds from maturing mortgage bonds back into that market.
