WASHINGTON - The Federal Reserve sent its clearest signal to date Wednesday that it will keep interest rates super-low to boost the U.S. economy even after the job market has improved significantly.
The Fed says it plans to keep its key short-term rate near zero until the unemployment rate reaches 6.5 percent or less - as long as expected inflation is tame. Unemployment is now 7.7 percent.
That plan adds detail to what the Fed had said before: that it expects to keep the rate low until at least mid-2015. For the first time, the Fed is making clear to investors and consumers that it will link its actions to specific economic markers.
"This approach is superior" to setting a timetable for a possible rate increase, Chairman Ben Bernanke said at a news conference. "It is more transparent and will allow the markets to respond quickly and promptly to changes" in the Fed's economic outlook.
Bernanke made clear that even after unemployment falls below 6.5 percent, the Fed might decide that it needs to keep stimulating the economy. Other economic factors will also shape its policy decisions, he said.
In a statement after its final policy meeting of the year, the Fed said it will also keep spending $85 billion a month on bond purchases to drive down long-term borrowing costs and stimulate economic growth.
The Fed will spend $45 billion a month on long-term Treasury purchases to replace a previous bond-purchase program of an equal size. And it will keep buying $40 billion a month in mortgage bonds.
"The Fed has become more explicit and more transparent," said Steven Wood, chief economist at Insight Economics. "This should provide the markets with much more clarity around monetary policy action in the upcoming year."
With its new purchases of long-term Treasurys, the Fed's investment portfolio, which is nearly $3 trillion, would swell to nearly $4 trillion by the end of 2013 if its bond purchase programs remain in place.
The policies are intended to help an economy that the Fed says is growing only modestly.
Stocks and bond yields rose after the Fed's statement was released. The Dow Jones industrial average was little changed just before the Fed news crossed at 12:30 p.m. Eastern time and jumped 69 points shortly after.
The yield on the benchmark 10-year Treasury note rose to 1.69 percent from 1.65 percent as investors sold ultra-safe investments and moved money into stocks.
The Fed's plan to keep stimulating the economy at least until unemployment has reached 6.5 percent is intended to reassure consumers, companies and investors, said Joseph Gagnon, a former Fed official who is a senior fellow at the Peterson Institute for International Economics.
Having only a target date of mid-2015 for any increase in interest rates "sounded gloomy," as if the economy would remain weak until then, Gagnon said. Specifying an unemployment rate - close to a normal rate of 6 percent or less - makes clear that the Fed will keep stimulating the economy even after the job market has strengthened.
"This is trying to get away from that sense of 'Oh, my God, this is all about gloom and doom,' " Gagnon said.