Leaving buyers club could be Fed's next tricky task

SAN FRANCISCO/NEW YORK (Reuters) - With the wind-down of the Federal Reserve's massive bond buying under way, policymakers are beginning to discuss the next stage - when to allow the U.S. central bank's swollen balance sheet to shrink. If the Fed sticks to a plan laid out in June 2011, a decision to stop reinvesting bond proceeds would precede any increase in interest rates and mark the beginning of the Fed's first tightening cycle since 2004-2006. And those who stick by the Fed's original plan say they must make sure markets understand that leaving the buyers club does not mean higher rates are necessarily right around the corner. Either way, a decision to finally stop reinvesting proceeds from its Treasuries and mortgage-backed securities would mark the first step in an effort by the Fed to shrink its balance sheet from unprecedented levels.

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