Despite signs that "activity in the housing sector has increased," the Federal Reserve Board's policymaking committee said Wednesday that it would continue to purchase debt and MBS from Fannie Mae and Freddie Mac into next year.

The Fed has committed to buying $1.25 trillion of MBS and $200 billion of debt from the GSEs, though the central bank has been saying that those purchases would wrap up by yearend. The purchases will now continue through the first quarter of 2010.

In its statement, the Federal Open Market Committee said the purchases are intended to "support mortgage lending and housing markets and to improve overall conditions in private credit markets."

Steve Wyatt, the chair of the finance department at Miami University's Farmer School of Business, said the Fed's move amounted to an acknowledgement that Fannie and Freddie still need significant government support to continue operating.

"Credit markets have improved dramatically but the housing market is still pretty much on life support," he said. "If you think about where everything is coming from, Fannie and Freddie are really accounting for most of the mortgage purchases out there."

The extension also gives the Fed time to pull back from the purchases more gradually. In a note to clients, Chris Low, the chief economist at First Horizon National Corp.'s FTN Financial, said the Fed's goal is to "avoid a sudden increase in mortgage rates when the program ends."

As expected, the central bank left its federal funds rate unchanged at a range of 0% to 0.25%.

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