The Federal Open Market Committee decided to start tapering the central bank’s $85 billion in monthly bond purchases, aimed at holding down long-term interest rates. The program began in September 2012.
Fed officials said they would reduce the purchases by $10 billion a month, starting in January.
In a statement after a two-day meeting, Fed policymakers said they were reducing the purchases to $75 billion a month "in light of cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions."
The Fed policymakers committed to keeping the central bank's short-term interest rate near zero until "well past the time" that the unemployment rate drops below 6.5%. The unemployment rate in November was 7%.
The Fed also largely upgraded its economic forecasts. The unemployment rate next year will range from 6.3% to 6.6%, the central bank now projects, compared with its September forecast of 6.4% to 6.8%.
The economy will grow at a 2.8% to 3.2% annual rate in 2014, the Fed is estimating. That compares to a September forecast of 2.9% to 3.1%.