As expected, the Fed replaced the existing Operation Twist program due to expire at the end of the year with a fresh round of Treasury purchases that will increase its balance sheet. It committed to monthly purchases of $45 billion in Treasurys in addition to the $40 billion per month in mortgage-backed bonds it started buying in September.
In addition, the central bank also implemented numerical thresholds for policy, a move that had not been expected until early next year. The Fed said it will likely keep official rates near zero for as long as unemployment remains above 6.5 percent, inflation between one and two years ahead is projected to be no more than 2.5 percent, and long-term inflation expectations remain contained.
"Since QE1 was announced, the Fed has purchased about $2.4 trillion in bonds; yet, the United States continues to grow at anemic rates with no real strategy for job creation," said Todd Schoenberger, managing partner at LandColt Capital. It may take generations to unwind these accommodative monetary policy moves."
Meanwhile, the Fed said it expects the unemployment rate to stay elevated until late 2015, suggesting it will keep short-term interest rates low for the next three years. In addition, the central bank slightly lowered its economic growth expectations and unemployment forecasts from September.
"Let me emphasize that the 6.5-percent threshold for the unemployment rate should not be interpreted as the committee's longer-term objective for unemployment," said Bernanke in a press conference. "Because changes in monetary policy affect the economy with a lag, the committee believes it likely will begin moving away from a highly accommodative policy stance before the economy reaches maximum unemployment."
Additionally, Bernanke reiterated that the central bank's monetary policy won't be enough to offset damage from the "fiscal cliff."
Ongoing "fiscal cliff" negotiations have sent markets zig-zagging in recent weeks. The looming fiscal cliff is the biggest worry for Wall Street at the moment, according to a CNBC survey. (Read More: 'Let's Just Do It,' Dimon Says of Avoiding 'Cliff')
"We're hanging on every word coming out from Washington and a lot of it is rhetoric," said Yu-Dee Chang. chief trader at ACE Investment Strategists. "The consensus is that something will get done, but the more Washington drags this out, the worse it will be for markets."