And it made clear it won't stop there and is ready to try other stimulative measures if hiring doesn't pick up.
Stock prices rocketed up in approval. But economists said the Fed's plans to buy mortgage bonds for as long as it deems necessary and to keep interest rates at record lows until mid-2015 - six months longer than previously planned - might provide little benefit to the economy.
Chairman Ben Bernanke himself cautioned that the Fed's actions are no panacea for slow growth and high unemployment, and said the economy will probably need help even after the recovery strengthens.
"The idea is to quicken the recovery," Bernanke said at a news conference after the Fed lowered its outlook for growth this year.
As part of its bold and open-ended plan, the Fed said it would spend $40 billion a month to buy mortgage bonds to make home buying more affordable. That will be the third round of bond-buying in an effort to spur the economy, and the Fed left open the possibility of taking other steps to encourage borrowing and financial risk-taking.
Stock prices rose steadily after the Fed's announcement at 12:30 p.m. Eastern time. The Dow Jones industrial average closed up more than 200 points, coming within 625 points - or 4.6 percent - of its all-time high. Other stock averages also surged.
Benchmarks in Asia also rallied on the news. Japan's Nikkei 225 index gained 1.5 percent in early trading. Hong Kong's Hang Seng Index climbed 2.5 percent to its highest level since early May.
The Fed's policy committee announced the actions after its two-day meeting. The moves pointed to how sluggish the U.S. and global economies remain more than three years after the Great Recession ended.
Thursday's announcement marked the Fed's latest dramatic intervention since the financial crisis erupted in 2008 and the recession sent unemployment into double digits. The Fed cut its benchmark short-term rate to near zero and has kept it there for nearly four years. And it's bought more than $2 trillion in Treasurys and mortgage bonds to try to drive down long-term rates.
Yet for all that, the U.S. economy is still struggling. The unemployment rate is 8.1 percent. And the Fed estimated Thursday that the rate will fall no lower than 7.6 percent in 2013.
The Fed's latest actions came a week after the European Central Bank announced its most ambitious plan yet to ease Europe's financial crisis by buying unlimited amounts of government bonds to help countries manage their debts.
With less than eight weeks until Election Day, the economy remains the top issue on most voters' minds. Many Republicans have been critical of the Fed's continued efforts to drive interest rates lower, saying they fear it could ignite inflation.
Asked at his news conference whether the Fed considered the impact of its actions on the presidential election, Bernanke said: "We make our decisions based entirely on the state of the economy. ... We just don't take those factors into account."
The Fed also lowered its outlook for economic growth this year, though it was more optimistic about the next two years. It said it expects growth to be no stronger than 2 percent this year, down from its forecast of 2.4 percent in June.
It said it expected the unemployment rate to be no lower than 6.7 percent in 2014, with inflation remaining at or below 2 percent for three more years.
Bernanke made clear that higher stock prices are among the Fed's goals in buying bonds. Stock gains increase Americans' wealth, he noted, and typically lead individuals and businesses to spend and invest more.
But some economists said they thought the benefit to the economy would be slight.
"We doubt it will be enough to get the economy on the right track," said Paul Ashworth, an economist at Capital Economics. "It's only a matter of time before speculation begins as to when the Fed will raise its purchases from $40 billion a month."
The Fed's ability to increase home buying might be limited even if its bond purchases help lower mortgage rates. The average rate on a 30-year fixed mortgage is 3.55 percent. That's barely above the record low of 3.49 percent set in July.
While the U.S. housing market has improved, it has a long way to go to reach a full recovery. Some economists forecast that sales of previously occupied homes will reach about 4.6 million this year. That's well below the 5.5 million annual sales pace considered healthy.
Bernanke sought to lower expectations about how much the Fed's intervention might help the economy.
"We're just trying to get the economy moving in the right direction, to make sure that we don't stagnate at high levels of unemployment," he said. "All that being said, monetary policy, as I've said many times, is not a panacea."
The Fed's statement was approved 11-1. The lone dissenter was Richmond Fed President Jeffrey Lacker, who worried about igniting inflation.
The Fed's new bond purchases, which will start Friday, amount to less per month than either of its first two bond programs. But by committing to buying bonds indefinitely, the Fed is seeking to assure investors and consumers that borrowing will remain cheap far into the future.
"In many ways, today's actions represent the beginning of a new phase in Bernanke's efforts to get the economy moving again," said Michael Feroli, an economist at JPMorgan Chase Bank.
Some economists suggested that the Fed might continue to buy $40 billion a month in mortgage bonds for up to three years. That's how long some expect it will take for the unemployment rate to dip below 7 percent, toward a "normal" rate of 6 percent or less.
If the new bond buying lasts three years, Ashworth said it would add about $1.4 trillion to the Fed's purchases. That would be close to the $1.7 trillion the Fed spent in its first round of bond buying, which began in November 2008 and ran until March 2010.
The Fed's second bond-buying program totaled $600 billion. It ran from November 2010 through June 2011.
Still, skeptics caution that further bond buying might provide little economic benefit because rates are already near record lows. Critics also warn that more bond purchases raise the risk of higher inflation later.
A spokeswoman for Mitt Romney's Republican presidential campaign said the Fed's latest efforts to boost the economy are "further confirmation that President Obama's policies have not worked."
The Fed is under pressure to act because the U.S. economy is still growing too slowly to reduce high unemployment. The unemployment rate has topped 8 percent every month since the recession officially ended more than three years ago.
In August, job growth slowed sharply. Employers added just 96,000 jobs, down from 141,000 in July and well below what is needed to bring relief to the more than 12 million who are unemployed.
The unemployment rate did fall to 8.1 percent from 8.3 percent. But that was because many Americans stopped looking for work, so they were no longer counted as unemployed.
Bernanke spotlighted the problem of chronic high unemployment in a speech to an economic conference in Jackson Hole, Wyo., late last month. He argued that bond purchases and other unorthodox Fed actions had helped ease borrowing costs and boost stock prices.