Fed to buy Treasuries with maturing mortgage debt

The U.S. Federal Reserve on Tuesday said it would begin funneling proceeds from its maturing mortgage bonds into longer-term government debt in an effort to support a sputtering economic recovery.

The Fed, which left benchmark overnight interest rates steady in a zero to 0.25 percent range, also renewed its pledge to keep them low for an extended period, as widely expected.

The decision to reinvest mortgage bond proceeds, an effort to keep market-set borrowing costs down, represents a significant policy shift for a central bank that just a few months ago had been avidly debating an exit strategy from the extraordinary stimulus delivered during the financial crisis.

"To help support the economic recovery in a context of price stability, the committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities," the Fed said in a statement.

The move was somewhat surprising. Although many analysts and investors had expected the Fed to announce it was reinvesting the mortgage proceeds, most had thought it would buy more mortgage debt instead of government bonds.