NEW YORK (

TheStreet

) -- In a semi-inflationary gesture, the

Federal Reserve

said on Monday that it will purchase $27 billion worth of government debt, but keep its balance sheet at the current size.

The Federal Reserve Bank of New York said it will use available funds from maturing mortgage-backed securities and agency debt to make the purchases. The Fed will buy T-bills and TIPS with maturities between three months and 30 years.

The federal government has taken extraordinary measures throughout the downturn to keep the financial markets in check and the economy humming along. The Fed has purchased MBS, commercial paper, asset-backed securities and taken other non-conventional assets - including "toxic" debt from

American International Group

(AIG) - Get Report

and Washington Mutual - onto its balance sheet in order to protect the system.

It has also held its interest rate target at a historically low level of 0% to 0.25% since Dec. 2008 to incentivize lending.

Yet the ongoing economic headwinds, along with the low-interest-rate policies, have led to widespread concern about deflation. As a result, Fed Chairman Ben Bernanke said his agency would consider additional stimulus options during a speech on Aug. 27.

With Monday's Treasury-bill announcement, the Fed is signaling that it will keep assets at the current level in an effort to spur economic growth, as those deflation concerns have moderated in recent weeks. The economy grew last quarter, albeit at a slower pace, and the markets have been buoyed recently by better-than-expected data from the jobs and housing markets.

--Written by Lauren Tara LaCapra in New York.

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