The Federal Reserve said yesterday the US economic recovery was starting to build up steam and restated its intention to keep borrowing costs near zero for “an extended period”.

The US central bank’s Federal Open Market Committee kept the benchmark federal funds rate unchanged in a range of zero to 0.25%, and said the economy had “continued to pick up” since its last policy-setting meeting in September.

It also said the housing market has grown stronger, a key ingredient to a sustained recovery.

The Fed said it would buy about $175bn of debt issued by government-backed mortgage finance agencies such as Freddie Mac, less than the $200bn 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.”

Policymakers added that companies “continue to make progress in bringing inventory stocks into better alignment with sales.”

The decision to keep rates steady was unanimous.

The panel played down the fear of an upsurge in inflation. It said: “With substantial resource slack likely to continue to dampen cost pressures and with longer term inflation expectations stable, the committee expects that inflation will remain subdued for some time.”

The bank’s comments were a bit more upbeat than September’s statement, which referred to spending as “stabilising”.

Top Fed officials, including chairman Ben Bernanke, have said the US slump – the worst since the 1930s – has left a legacy of soaring unemployment and idle factories that should keep price pressures in check.

However, US financial markets received some good news hours before the Fed decision.

The Institute for Supply Management said service industry activity grew for a second straight month in October. The trade group’s service index slipped to 50.6 from 50.9 in September. A reading above 50 signals growth. Analysts polled by Thomson Reuters had expected a 51.5.

Although the index did not meet forecasts, the ISM said new orders, which are an indicator of future business activity, grew faster. Business activity also picked up.

An ADP National Employment Report said 203,000 private sector jobs were lost in October, down from the 227,000 lost in September. It was the seventh straight month of declining job losses.

That raised hopes for a better-than-expected employment report from the Labour Department tomorrow.