Unemployment will fall no lower than 7.4 percent next year and 6.8 percent by the end of 2014, the Fed projects. The earliest the Fed sees unemployment dropping below 6.5 percent is the end of 2015.

The Fed said it plans to keep its key short-term interest rate near zero as long as unemployment remains above 6.5 percent and inflation is expected to stay below 2.5 percent.

The latest forecast projects inflation will stay at or below 2 percent for the next three years. That gives the Fed more leeway to pursue aggressive stimulus measures.

In an effort to drive the unemployment rate lower, the Fed said after its meeting that it will spend a total of $85 billion a month to sustain an aggressive drive to keep long-term interest rates low. The goal is to encourage more borrowing and spending, which drives economic growth.

The Fed said it will continue buying bonds until the job market shows substantial improvement.

The projections made no mention of the "fiscal cliff," the combination of tax increases and spending cuts that are set to kick next month and threaten to push the economy back into a recession. But the modest growth and gradually lower unemployment next year suggest the Fed is assuming President Barack Obama and Republican lawmakers will reach a budget deal before then to avoid the cliff.

Bernanke has warned that the Fed does not have the tools to offset the damage to the economy if it goes over the cliff.

At the same time, Bernanke has said that if an agreement can be reached that addresses the nation's long-term budget challenges without slowing the recovery in the short term, next year could be "a very good one for the American economy."

Fear of higher taxes has yet to slow hiring. Employers added 146,000 jobs last month, the government said last week. That's about the same as the average monthly gain of 150,000 in the past year.

The unemployment rate fell to a four-year low of 7.7 percent last month from 7.9 percent in October. But the decline was mostly because more people without jobs gave up looking for work. The government only counts people as unemployed if they are actively searching.

The economy grew at solid 2.7 percent annual rate in the July-September quarter, more than double the 1.3 percent rate in the April-June quarter. But many analysts believe worries about the fiscal cliff are contributing to slower growth in the current October-December quarter below 2 percent.