Most Fed officials consider reduce balance sheet later this year: Minutes

Most Federal Reserve officials think the U.S. central bank should reduce its 4.5 trillion dollars of balance sheet later this year, if economy continues to perform as expected, minutes of the Fed's latest monetary policy meeting showed Wednesday.

"Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee's reinvestment policy would likely be appropriate later this year," said the minutes of the Fed's latest monetary policy meeting which was held on March 14 and 15.

In order to stimulate growth, the Fed bought Treasury and mortgage-backed bonds on an unprecedented scale during and after the 2007-2009 recession to help keep interest rates low.

"Many participants emphasized that reduce the size of the balance sheet should be conducted in a passive and predictable manner," said the minutes.

Because shrinking the balance sheet could cause long-term rates to rise and threaten economic expansion. Central bank officials also discussed how to reduce the balance sheet.

"Participants generally preferred to phase out or cease reinvestments of both Treasury securities and agency mortgage-backed securities," said the minutes.

But officials made no decisions on any specific approach and timing. The discussions about reducing the balance sheet come against a backdrop of an improving economic outlook.

The minutes showed that the Fed officials see more upside risks to the economic outlook, on the expectation of more expansionary fiscal policies and diminished risks from overseas economies.

However, Fed officials underscored the considerable uncertainty about the timing and nature of potential changes to fiscal policies as well as the effects of such changes on the economic activity.

In its March meeting, the Fed raised interest rates for the second time in three months, shifting to a faster pace of rate hikes under the Trump administration as the job market is strengthening and inflation is rising toward its target of 2 percent.