BIRMINGHAM, Ala. Feb 5 The Federal Reserve will likely start to shrink its balance sheet "in some period of years" and must watch for inflation pressures, a top U.S. central banker said on Wednesday.
"I am reasonably confident that this can be done in an orderly fashion over a number of years," Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said during a question-and-answer session at the Rotary Club of Birmingham.
Lockhart said it would be important to watch for upward inflation pressure at the time that excess reserves started to transition to increased lending.
The Fed has trimmed back its monthly bond purchases by $10 billion at each of its last two meetings, a pace many economists expect to continue for the rest of the year.
Policymakers next meet in March, when they will have to consider whether to cut purchases again from the current $65 billion a month.