The Federal Reserve should act predictably when addressing the size of its balance sheet in order to avoid surprises for investors that could lead to significant market moves, International Monetary Fund (IMF) Director Tobias Adrian told CNBC on Wednesday.
"The Federal Reserve has an additional policy tool which is the size of the balance sheet and it can use that policy tool to impact longer term yields. We feel that it should use that tool in a predictable manner so that it doesn't generate surprises in the market place," Adrian said.
Federal Reserve officials had said the shedding of $4.5 trillion in bonds the central bank is holding on its balance sheet will begin this year.
The revelation came from a summary of the Federal Open Market Committee meeting held in March, during which the group approved a quarter-point hike in its benchmark interest rate target. Officials at the meeting noted that the Fed is likely to raise rates at a faster pace.
The right policy mix 'crucial' for stability
While speaking on the sidelines of the IMF and World Bank's spring meeting in Washington, Adrian insisted he was not worried about the U.S. central bank's actions or the world's global financial stability overall. However, he stressed the financial market could be vulnerable to volatility.
"At the moment the market is moving somewhat sideways as people are trying to figure out what the next policy moves are going to be… but of course, we could see big moves if there is news coming out in terms of actions," he added.
The IMF Director cited political and policy uncertainties in Europe and the U.S. as potential areas for concern.
"I am not worried (but) of course there can always be policy mistakes… and the (global financial stability) report focuses very much on the scope for potential mistakes," Adrian said.
The report, published Wednesday, projected financial stability worldwide to improve and followed the stronger overall economic outlook forecast by the same Washington-based institute 24 hours earlier.
"The market overall is still taking an optimistic view hence getting the policy mix right is crucial for financial stability going forward," Adrian concluded.
—CNBC's Jeff Cox contributed to this report.