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Fed could cut its balance sheet in half, Bernanke says

  • The Fed is scheduled to conclude its two-day meeting this Wednesday, but is not expected to raise interest rates until at least June.
  • "I think they're aiming for something in the vicinity of $2.3 to $2.8 trillion, something like that," former Fed Chair Ben Bernanke said Monday on CNBC's "Squawk Box."
  • March meeting minutes showed the Fed intends to cut the size of the balance sheet this year.

Former Federal Reserve Chairman Ben Bernanke says the central bankcould reduce its $4.5 trillion balance sheet by as much as half.

"I think they're aiming for something in the vicinity of $2.3 to $2.8 trillion, something like that," he said Monday on CNBC's "Squawk Box."

Bernanke did not expect the Fed would return its balance sheet to precrisis levels of less than $1 trillion.

During the financial crisis, the monetary-policy setting Federal Open Market Committee bought a massive amount of assets and cut short-term interest rates to near zero in an effort to stimulate the economy.

Former Fed Chairman Ben Bernanke.
Cameron Costa | CNBC
Former Fed Chairman Ben Bernanke.

The central bank began moving back toward more normal policy in the last three years by halting new asset purchases and hiking rates three times. The Fed is expected to raise rates at least two more times this year, and March meeting minutes showed policymakers intend to cut the size of the balance sheet in 2017.

"They're going to want to maintain more bank reserves than before the crisis because they want run to monetary policy with a large amount of reserves," Bernanke said.

Total assets of the Federal Reserve

Source: Federal Reserve

In January, Bernanke said in a Brookings Institution blog post that the Fed should not reduce its balance sheet until "short-term interest rates are comfortably away from their effective lower bound" to prevent potential financial markets disruption.

The Fed holds a two-day meeting on Tuesday and Wednesday but is not expected to raise interest rates until at least June.

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— CNBC's Jeff Cox contributed to this report.