The US Federal Reserve will pay $500 billion over the next five years to buy up to 2 billion US shares of stock, the Federal Deposit Insurance Corporation (FDIC) has said.
The bank said the new arrangement would ensure that “the internet continues to deliver for American consumers”.
The bank’s announcement comes as it is set to begin a two-year transition to an all-cash model of lending, following the shock announcement of a rate hike in June by the Fed.
The Fed will also raise interest rates in the coming weeks, raising the possibility of another increase by the end of this year.
The announcement is likely to cause the price of some US government bonds to rise as investors react to the announcement.
Last week, US stock markets hit their highest levels in nearly two months, with the Dow Jones Industrial Average climbing more than 800 points.
The price of the Dow rose by 2,100 points at the close.
However, the S&P 500 rose by just under 1,000 points at one point.
The Federal Reserve is planning to sell $1.5 trillion worth of US bonds by the close of trading on Thursday, the first time it has done so since June of this last year.
Inflation is set for a second straight year, with consumer prices expected to rise by 2.6% in 2018, according to the Fed’s most recent report.
The US economy is expected to grow by just over 2.5% in 2019.
“We have to look at what we have learned about inflation and inflation expectations,” Federal Reserve Chair Janet Yellen said in a speech on Wednesday.
“We also need to look to what is happening in the economy.”
The Federal Open Market Committee will decide on the new Fed lending arrangement at its meeting on Thursday.
The central bank’s policy makers will vote on whether to increase the central bank balance sheet by $500 to $3 trillion by the middle of next year, or by $1 trillion.
The deal also means that if the Fed is unable to reach its inflation target of 2% this year, it will have to take a smaller cut in its key lending rate to compensate.
The bank is due to release the new borrowing plan on Thursday morning.