Fed says it will keep rates low

US central bankers last night pledged to keep interest rates at record lows for an &ldquo;extended period&rdquo; as the economy clambers out of recession.<br /><br />The Federal Reserve said economic activity &ldquo;has continued to pick up&rdquo; but added that rising unemployment and tight credit conditions were holding back consumer confidence.<br /><br />Fed chairman Ben Bernanke and colleagues opted to hold the target range for its bank lending rate at zero to 0.25 per cent.<br /><br />The news came as data from the Institute for Supply Management showed that the US service sector grew for a second straight month in October but at a slower pace than in September. The ISM service index dipped to 50.6 last month from 50.9. Any reading above 50 signals growth.<br /><br />Last week, an advance estimate of gross domestic product (GDP) by the Bureau of Economic Analysis suggested that US output expanded at an annual rate of 3.5 per cent in the third quarter, indicating that the recovery was underway.<br /><br />But other economic data has been less promising.<br /><br />The US unemployment rate hit a 26-year high of 9.8 per cent in September and this is expected to increase to 9.9 per cent when the government releases the figures on Friday.<br /><br />The Fed also announced last night it would trim by $25bn, to $175bn, the amount it will spend on buying so-called &ldquo;agency debt&rdquo;.