The Fed said it will buy $40 billion of mortgage-backed securities per month in an attempt to foster a nascent recovery in the real estate market.

The purchases will be open-ended, meaning that they will continue until the Fed is satisfied that economic conditions, primarily in unemployment, improve.

"There's strong hints that they'll do Treasurys next," Joe LaVorgna, chief economist at Deutsche Bank Advisors, said in a phone interview from London. "They're pulling out all the stops to try to get this economy to gain some traction and, most important, to get unemployment down."

The stock market, which had been slightly positive prior to the decision, shortly after 12:30 p.m., surged while bond yields, particularly farther out on the curve, jumped higher. Gold and other metals gained at least 1 percent across the board while the dollar slid against most global currencies.

Enacting the third leg of quantitative easing, or QE3, will take the Fed's money creation past the $3 trillion level since it began the process in 2008.

"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 Open Market Committee said in a statement.

As a follow-up to the statement, the Fed released its latest economic projections, which foresee slow growth including a jobless rate that stays above 7 percent into 2014. The economic projections expect growth to remain slow but to improve due to the stimulate measures announced Thursday.

In addition, the Fed said it will continue its program of selling shorter-dated government debt and buying longer-term securities, a mechanism known as Operation Twist. It also will continue its policy of reinvesting principal payments from agency debt and mortgage-backed securities back into mortgages.

The Fed left its funds rate unchanged at near-zero but offered one change in that regard, saying the rate would stay at "exceptionally low levels" until at least mid-2015.

"These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," the Fed statement said.

The vote was 11-1, with Jeffrey Lacker voting against the notion of asset purchases as well as setting a time frame for rates.

At an afternoon news conference, Fed Chairman Ben Bernanke offered a defense of the Fed's QE activities, saying they are not adding to the government budget deficit nor causing runaway inflation.

In addition, he addressed concerns that savers are being penalized from low interest rates, saying that the policy has allowed for growth in other areas.

"While low interest rates impose some costs, Americans will ultimately benefit most from the healthy and growing economy that low interest rates promote," he said.

Bernanke also issued his latest challenge to Washington to get serious about fiscal policy.

"We can't solve this problem by ourselves," he said.