Fed sees rates near zero for "extended period"

By Mark Felsenthal and David Lawder

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

As expected, the central bank closed out a two-day meeting with a decision to keep benchmark overnight interest rates in a range of zero to 0.25 percent. The vote was unanimous.

In a statement announcing the decision, the Fed said the U.S. economy had "continued to pick up" since its last meeting in September, but it expressed concern the recovery was likely to be muted.

"Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit," it said. While still emphasizing risks, the Fed was a bit more upbeat than in September, when it had simply said spending was "stabilizing."

The Fed cut interest rates to near zero last December and has pumped more than $1 trillion into the economy to tame a severe financial crisis and the deepest recession since the 1930s.

Now that the economy is starting to recovery, financial markets are increasingly wondering when the Fed and other central banks around the globe will begin to remove the extraordinary economic support they have provided.

The U.S. central bank was more explicit than it had been previously on why it expects to be able to keep rates "exceptionally low" for a long time, citing the slack that has built up in the economy and the lack of an inflationary threat.

By citing "low rates of resource utilization, subdued inflation trends, and stable inflation expectations," analysts said the Fed was providing a road map to follow to determine when it may finally begin to tighten policy.