Fed Launches Open-Ended QE3; Wall Street Goes Wild

As for what the Fed does next, the statement said the central bank plans to maintain its "highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens."

Thursday's move was driven by the stagnant conditions in the labor market. The Fed's dual mandate calls for maximum employment and keeping a lid on inflation. While prices have been relatively stable, the unemployment remains above 8% and job creation has been inconsistent with August non-farm payrolls increasing by just 96,000. The Fed indicated its bond buying would likely continue until the employment picture brightens.

"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 statement said. "In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases."

Fed Chairman Ben Bernanke defended the aggressive action in a press conference shortly after the decision was announced, saying "We want unemployment to come down in a sustained way."

Paul Ashworth, chief U.S. economist at Capital Economics, said the per month purchasing of $40 billion worth of mortgage-backed securities was smaller than expected and he thinks the pressure to up the ante could soon start to mount.

"Overall, the Fed has done all the markets were asking for," Ashworth wrote in emailed commentary. "The problem is that we doubt it will be enough to get the economy on the right track. It's only a matter of time before speculation begins as to when the Fed will raise its purchases from $40bn a month."

RDQ Economics said the action would likely give stocks a temporary boost and expressed some concern about the unintended consequences that could result.