Buying government bonds will allow the Fed to inject more money into the economy

According to the Reuters report, on Wednesday the Fed revealed its firm intention to support the US economy with an additional injection of $1 trillion, partly by buying government bonds for the first time since the 1960s, in order to help resistance against the economic collapse.

Two-day policy meeting finished with the central bank decision to buy up to $300 billion in longer-term Treasury bonds to bring down borrowing costs, considering "Operation Twist" program that ran from 1961 to 1965. 

"It's an attempt to keep rates low, particularly on the mortgage side, which is seen as critical to a big revival of the housing market," said Rick Meckler, president of Libertyview Capital Management in New York.

"I think it fits in well with the overall plan the government has to be more creative about how it can bring mortgages more in line with the movement that's appeared in Treasury rates," he said.

It should be noted that in early talks (as on March 6) William Dudley, New York Federal Reserve Bank President, had said that buying longer-term government debt didn’t seem to be the most efficient way to ease credit market strains.

The price of U.S. government bonds surged after the announcement, with yields taking their biggest one-day tumble since 1987. Stock prices also shot higher, while the dollar shrunk.

Purchasing Treasury debt, the Fed said it additionally would surpass an existing program to buy debt and securities issued by mortgage finance agencies by $850 billion to $1.45 trillion as an effort to lower mortgage rates. Rates on 30-year mortgages fell as much as 0.375 percentage point to 5.0 percent as Quicken Loans announced.