Fed to pump $40bn a month into struggling US economy The US Federal Reserve will today start buying mortgage-backed securities as part of its plans to pump an extra $40 billion (£24.8bn) a month into the economy, and will continue buying more bonds until the country's jobs market shows signs of substantial improvement. It also extended its plan to keep short-term interest rates at record low levels of between zero and 0.25 per cent until the middle of 2015, rather than 2014 as it had previously targeted. The Fed also downgraded its economic growth forecasts for this year, to between 1.7 and 2 per cent, down from its June prediction of 1.9 to 2.4 per cent, although it raised its estimate for GDP growth for the coming years. Stocks rose after the announcement, although some analysts said the central bank had under-delivered. The Dow Jones Industrial Average, which was up 15 points ahead of the news, surged more than 100 points following the Fed's statement and closed up 206.51 points, or 1.55 per cent, at 13,539.86, while the broader Standard & Poor's 500 Index recorded its highest closing figure since 2007. Craig Erlam, market analyst at Alpari, said the $40bn of monthly mortgage purchases come on top of "Operation Twist" - the Fed's programme of buying $45bn a month of long-term debt, which runs until the end of this year. He added: "This may sound like a large programme, however it is smaller than the markets had priced in, which is why we may see only a limited rally." Both measures were announced at the end of the Fed's two-day meeting yesterday, as the committee expressed concerns that growth in the world's largest economy might not be strong enough to stimulate the labour market. Just 96,000 jobs were created last month, not enough to keep up with population growth. Although the unemployment rate eased to 8.1 per cent, that was only because many Americans stopped looking for work, so were no longer counted as unemployed. The Fed expects the unemployment rate to fall to between 7.6 and 7.9 per cent next year, and as low as 6.7 per cent in 2014. Marcus Bullus, trading director at MB Capital, said: "The markets got what they wanted, but deep down they wanted more. The feeling in the markets is that the Fed could have gone further. The response has been positive, but it hasn't been euphoric. The markets had priced this in for some weeks now. The latest purchases build on the $2.3 trillion in US government and housing-related debt the Fed has already bought. The bond purchases are intended to reduce long-term interest rates in a bid to boost borrowing and spending. With less than eight weeks left until the presidential election, the economy is the top issue on most voters" minds. 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." Only one member of the 12-strong federal open market committee - Jeffrey Lacker - voted against yesterday's actions. Lacker, who is president of the Federal Reserve Bank of Richmond and has previously voted against extending Operation Twist to the end of the year, said he was opposed to further asset purchases.