Fed to keep rates low as services slow

There was not much change in the Fed's stance after the latest FOMC meeting. Bloomberg reports:

The Federal Reserve repeated it will keep interest rates near zero for “an extended period” and specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline.

“Businesses are still cutting back on fixed investment and staffing, though at a slower pace,” the Federal Open Market Committee said in a statement today. “Household spending appears to be expanding, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit,” the FOMC said after meeting in Washington...

Officials kept their benchmark overnight lending rate at between zero and 0.25 percent, where it has been since December. The conditions they cited to keep it there are “low rates of resource utilization, subdued inflation trends, and stable inflation expectations.”

Economic data somewhat justified the cautious Fed stance. From Bloomberg:

Service industries in the U.S. expanded more slowly than forecast in October, indicating that consumers spooked by mounting job losses are making a limited contribution to the recovery entering the fourth quarter.

The Institute for Supply Management’s index of non- manufacturing businesses which make up the largest part of the economy fell to 50.6 in October from 50.9 in September, according to the Tempe, Arizona-based group...

A separate report from ADP Employer Services today signaled unemployment will keep climbing. Companies cut an estimated 203,000 jobs in October. The figures, which don’t include hiring by government agencies, were forecast to show a decline of 198,000 jobs, according to the median estimate of 34 economists in a Bloomberg survey.

European service sectors provided a somewhat brighter picture. The eurozone service sector PMI rose to 53.0 in October from 51.1 in September while the UK service sector PMI rose to 56.9 from 55.3.