The Canadian dollar rose above $1.03 US today after the U.S. Federal Reserve announced aggressive actions aimed at stimulating the still-weak American economy by making it cheaper for consumers and businesses to borrow and spend.

The Fed will spend $40 billion a month to buy mortgage-backed securities for as long as it deems necessary. It plans to keep short-term interest at record lows through mid-2015 — six months longer than it previously had planned. And it's ready to take other unconventional steps if job growth doesn't pick up.

A statement from the Fed's policy committee said it thinks "a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens."

The loonie's official Bank of Canada close was up by .87 of a cent from yesterday, at 103.27 cents US, after the greenback dropped against major currencies.

Gold for September delivery shot up by $38.50 an ounce, or 2.2 per cent, to close at $1,769.10 US on worries the Fed’s move will spur inflation.

Oil for October delvery gained $1.30 to close $98.31 US a barrel. In Toronto, the S&P/TSX composite index gained 127.54 points to 12,360.16 and, in New York, the Dow Jones industrial average was up 206.51 points at 13,539.86. 

'We doubt it will be enough to get the economy on the right track.'—Paul Ashworth, economist, Capital Economics

Chairman Ben Bernanke later told a news conference that the country's employment situation "remains a grave concern."

A new Fed forecast says it thinks unemployment won't fall below eight per cent this year.

The Fed also lowered its outlook for growth this year but was more optimistic about the next two years.

The Fed now expects growth to be no stronger than two per cent this year. That's down from its forecast of 2.4 per cent in June and in line with most private economists' predictions.

But it expects growth to accelerate next year to as much as three per cent. That's up from June's forecast of as much as 2.8 per cent. For 2014, the Fed projected growth between three per cent and 3.8 per cent.

The Fed's actions pointed to how sluggish the economy remains more than three years after the Great Recession ended.

Some economists said they thought the benefit to the economy would be slight.

"We doubt it will be enough to get the economy on the right track," said Paul Ashworth, an economist at Capital Economics. "It's only a matter of time before speculation begins as to when the Fed will raise its purchases from $40 billion a month."

"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 a statement released after the meeting.

The statement was approved on an 11-1 vote. The lone dissenter was Richmond Fed President Jeffrey Lacker, who worries about igniting inflation.

Economy a top election issue

The bond purchases are intended to lower long-term interest rates to spur borrowing and spending. The Fed has previously bought $2 trillion in Treasury bonds and mortgage-backed securities since the 2008 financial crisis.

Skeptics caution that further bond buying might provide little benefit. Rates are already near record lows. Critics also warn that more bond purchases raise the risk of higher inflation later.

With less than eight weeks left until the presidential election, the economy is the top issue on most voters' minds. A spokeswoman for Mitt Romney's presidential campaign said the Fed's latest efforts to boost the economy are "further confirmation that President Obama's policies have not worked."

Asked whether the Fed considered the impact of its actions on the election, Bernanke said: "We make our decisions based entirely on the state of the economy ... We just don't take those factors into account."

The Fed is under pressure to act because the U.S. economy is still growing too slowly to reduce high unemployment. The unemployment rate has topped 8 percent every month since the Great Recession officially ended more than three years ago.

In August, U.S. job growth slowed sharply. Employers added just 96,000 jobs, down from 141,000 in July and well below what is needed to bring relief to the more than 12 million who are unemployed.

The unemployment rate did fall to 8.1 per cent from 8.3 per cent. But that was because many Americans stopped looking for work, so they were no longer counted as unemployed.

If the new bond buying lasts three years, Ashworth said it would add about $1.4 trillion to the Fed's purchases. That would be close to the $1.7 trillion the Fed spent in its first round of bond buying. That began in November 2008, at the height of the financial crisis, and ran until March 2010.

The Fed's second bond-buying program totalled $600 billion. It ran from November 2010 through June 2011.

With files from The Associated Press