The Federal Reserve will buy an additional US$600 billion ($771 billion) of Treasuries through June, expanding record stimulus and risking its credibility in a bid to reduce unemployment and avert deflation.

Policy makers, setting a pace of about US$75 billion of purchases a month, “will adjust the program as needed,” the Fed’s Open Market Committee said today in a statement in Washington. The central bank left unchanged its pledge to keep interest rates low for an “extended period” after Chairman Ben S. Bernanke said it could be modified in some way.

While Bernanke’s near-zero rates and US$1.7 trillion in asset purchases helped end the recession, the Fed said progress has been “disappointingly slow” in bringing down joblessness close to a 26-year high. The risk is that the move doesn’t work or fuels inflation and asset bubbles, said Paul Ballew, a former Fed economist and a senior vice president at Nationwide Mutual Insurance Co. in Columbus, Ohio.

“The Fed has been dissatisfied with the pace of recovery,” former Richmond Fed President J. Alfred Broaddus said. “The long-term mandate is to conduct monetary policy consistent with full employment and stable prices. We are a long way from that.”

The FOMC kept its benchmark interest rate target for overnight interbank loans at zero to 0.25%, where it has been since December 2008. New York Fed President William Dudley, who serves as FOMC vice chairman, said Oct. 1 that purchases of US$500 billion would be about equivalent to reducing the rate by 0.5 to 0.75%age point.

Boost Growth
Bernanke, in an opinion article for the Washington Post released late today, said the purchases should boost economic growth through lower borrowing costs and higher stock prices and that concerns about the strategy are “overstated.”

“This approach eased financial conditions in the past and, so far, looks to be effective again,” he said.

The Standard & Poor’s 500 index rose 0.4% to 1,197.96 at the 4 p.m. close of trading in New York. The dollar weakened 0.7% against the euro to US$1.4139 after touching a nine-month low of US$1.4179.

Central bankers acted a day after Americans voted in midterm elections to hand control of the House to Republicans and slim down Democrats’ Senate majority, intensifying political gridlock on fiscal issues and putting more of the burden for sustaining growth on the Fed. The FOMC’s schedule of eight meetings in 2010 was announced in June 2009.

Asset Purchases
Fifty-three of 56 economists surveyed by Bloomberg News last week predicted the central bank would announce asset purchases today, with 29 forecasting a pledge to buy US$500 billion or more.

“They did a little bit more -- that suggests they want to add an exclamation point to what they’re doing,” Broaddus said in a Bloomberg Television interview.

Including Treasury purchases from reinvesting proceeds of mortgage payments, the Fed will buy a total of US$850 billion to US$900 billion of securities through June, or about US$110 billion per month, the New York Fed said in an accompanying statement.

The Treasury 30-year bond fell the most in almost two months after the New York Fed said in a separate statement that 86% of its purchases will target bonds coming due in 2 ½ to 10 years.

“Only a small fraction of the buying will be beyond the 10-year note,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees US$550 billion.