June 17, 2014 / 3:00 PM / 4 years ago

Fed kicks off policy meeting with eye on normalization

June 17 (Reuters) - The U.S. Federal Reserve appeared to kick off its regular policy-setting meeting on Tuesday with another special discussion on the mechanics of how to eventually raise interest rates with such a massive portfolio of assets.

The central bank’s Board of Governors was set to discuss “medium-term monetary policy issues” at 10 a.m. EDT (1400 GMT), according to a Fed notice. The two-day meeting of the broader Federal Open Market Committee (FOMC), which also includes regional Fed presidents who vote on policy, began as expected simultaneously, a Fed spokesman said separately.

The Fed board and the FOMC also held a joint session to kick off April’s policy meeting in Washington. Minutes of that meeting show officials considered several strategies to eventually raise short-term rates at a time that the Fed “will have a very large balance sheet.”

Policymakers mulled the use of different policy tools - such as the rate of interest on excess bank reserves and a test-phase facility for overnight reverse repurchases - to tighten policy without destabilizing markets, according to the April 29-30 minutes. No final decisions were made at that meeting and officials requested more analysis from Fed staffers.

After three rounds of post-recession bond-buying the Fed’s balance sheet has grown to nearly $4.5 trillion. It is still growing but the purchases have been trimmed and should end by later this year, while rates are not expected to rise until mid-2015.

The Fed will issue its policy statement at 2 p.m. (1800 GMT) on Wednesday. Fed Chair Janet Yellen will hold a press conference a half hour later. (Reporting by Jonathan Spicer; Editing by Paul Simao)

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