Wary of bond 'cliff,' Fed plans cautious cuts to portfolio

http://www.reuters.com/article/2015/05/07/us-usa-fed-portfolio-idUSKBN0NS0BB20150507


The Federal Reserve is sketching out plans to prevent an abrupt contraction in its massive balance sheet next year, when some $500 billion in bonds expire and risk disrupting markets and the U.S. economic recovery.
Though it ended a stimulative asset-purchase program last October, the Fed is still buying mortgage and Treasury bonds to replenish its $4.5-trillion portfolio as holdings mature. The central bank has said it will keep reinvesting until some time after it begins raising interest rates later this year.
Asked publicly and privately about the longer-term strategy, Fed policymakers say they are in no rush to shrink the portfolio, suggesting they will seek to avoid a "cliff" - a disruptive end to reinvestments that might come if bonds are simply allowed to run off through maturity or prepayment.