Wary of bond ‘cliff,’ Fed plans cautious cuts to portfolio

NEW YORK: The Federal Reserve is sketching out plans to prevent an abrupt contraction in its massive balance sheet next year, when some US$500bil in bonds expire and risk disrupting markets and the US economic recovery.

Though it ended a stimulative asset-purchase programme last October, the Fed is still buying mortgage and Treasury bonds to replenish its US$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.