U.S. Fed sees rates near zero for extended period

By Mark Felsenthal

WASHINGTON (Reuters) - The U.S. Federal Reserve on Wednesday expressed growing confidence that an economic recovery was building, even though it stuck to its commitment to keep borrowing costs near zero for "an extended period."

As expected, the Fed kept its benchmark federal funds rate unchanged in a range of zero to 0.25 percent, and said the economy had "continued to pick up" since its last policy-setting meeting in September.

The Fed, the U.S. central bank, also said it would buy about $175 billion of debt issued by government-backed mortgage finance agencies, less than the $200 billion maximum it had originally allotted, citing limited availability.

In its closely watched policy statement, the Fed said household spending "appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit."

That was somewhat more upbeat than September's statement, which referred to spending as "stabilizing."

The central bank, wary of undercutting the fragile recovery by withdrawing its support too soon, is also on guard for any indication that its emergency lending efforts are fueling an unwelcome bout of inflation as the economy heals.

But top Fed officials, including Chairman Ben Bernanke, have said the U.S. recession, the most painful since the 1930s, has left a legacy of high unemployment and idle factories that should keep price pressures in check.

A private report on Wednesday showing U.S. companies cut payrolls at the slowest pace in more than a year may add to a sense that the economic numbers are moving in the right direction.