Fed can start unwinding stimulus this year: Williams

The Fed bought Treasury and mortgage-backed bonds on an unprecedented scale in the wake of the financial crisis to help keep interest rates low to spur hiring and growth.

It is currently reinvesting the money it gets from maturing bonds, thereby keeping the size of its balance sheet unchanged.

But the US economy is now growing at a healthy clip and Fed rate setters discussed whether to phase out or halt reinvestments all at once at their March 14-15 meeting, at which they also voted to raise interest rates.

Williams, who is close to Fed Chair Janet Yellen, said any such move would be communicated in advance, may start gradually and may take around five years.

He added the Fed's balance sheet needed to come down significantly from its current size but no decision had been made on its desired level.

"We can end at USD 2 trillion plus or minus and the process of ending reinvestments will take several years," he said.

"The number of years we are thinking about is something like five years."

Williams, who regains a vote on the Fed's policy committee next year under a rotation, repeated his expectation that the Fed will cut rates twice more this year but added there was a possibility of a third rate hike if inflation data held up.

This would take the total number of rate hikes for this year to four.