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The Federal Open Market Committee directed the Federal Reserve Bank of New York to buy $40 billion in agency mortgage bonds per month as part of an open-ended third round of quantitative easing starting Friday.
Buying will continue without any set deadline.
The Fed will also increase its holdings of longer-term securities by $85 billion each month through the end of the year.
"The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions," the Fed said in a statement.
The Fed will also keep the exceptionally low levels for the federal funds rate at least through mid-2015, extending it from the previous timeframe through 2014.
Operation Twist, the other plan to extend the average maturity of its securities holdings, will continue through the end of the year as announced in June.
The Federal Open Market Committee said it will monitor how the economy reacts in the coming months to the stimulus.
"If the outlook for the labor 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," the Fed said in the statement. "To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens."
As of June 30, the Fed held nearly $870 billion in agency MBS.
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