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Fed expected to start reducing balance sheet next year, survey says

New Fed Chair Janet Yellen scores slightly below her predecessor Ben S. Bernanke in monthly survey.

Federal Reserve officials are expected to start slowly reducing the central bank's $4.2 trillion in assets next year after the end of a key stimulus program that has helped dramatically increase the size of its balance sheet, according to survey results released Monday.

Respondents in April's CNBC Fed Survey also anticipate slightly higher short-term interest rates at the end of next year than they did last month, though they still expect the first rate hike to come in July 2015.

The survey also found new Fed Chair Janet L. Yellen scoring slightly lower than her predecessor, Ben S. Bernanke at this early point in her tenure.

Respondents gave Yellen an overall grade of B-minus, compared with a B grade for Bernanke, though they awarded her higher marks on her economic forecasting ability.

This week, Fed policymakers hold their second meeting under Yellen. They are expected to announce Wednesday that they are continuing to reduce the monthly bond-buying stimulus program, staying on pace to end it later this year.

No major shift in policy is expected, because Yellen does not have a news conference scheduled following this week's two-day meeting. Such news conferences are often used to explain a significant move.

About half of the respondents in CNBC's April survey said they expected the central bank to start reducing the assets on its balance sheet next year after the end of the stimulus program, known as quantitative easing. The figure is up from about 39% in the March survey.

But the reductions will be a modest $149 billion by the end of 2015, survey respondents predicted. The decline will come as some bonds mature.

The Fed's balance sheet has more than quadrupled since 2008 as it has taken aggressive actions to stimulate the economy.

Yellen roiled financial markets after her first news conference in March, when she suggested the Fed might start raising its near-zero short-term federal funds interest rate sooner than anticipated.

But she and other Fed officials reiterated they still expected the Fed to keep interest rates low for a while as the economy continues to recover from the Great Recession.

CNBC survey respondents said they expected the federal funds rate to be at 1% by the end of 2015, up from a 0.83% prediction in last month's survey.

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