Market Outlook

Market curious about Fed's 4 trillion 'shades of gray'

Parsing the Fed with an eye on Greece

As Fed Chair Janet Yellen prepares the world for the first Fed rate hike in nine years, she also may have to begin to address the $4.5 trillion elephant in the room.

That is the approximate size of the Fed balance sheet, and central bank officials at some point will be allowing the hundreds of billions in mortgage securities and Treasurys it added to its balance sheet during years of quantitative easing to roll down.

But the question is how and when the Fed will allow that to happen without ruffling financial markets and triggering a run up in long-term interest rates, as it slowly raises short-term rates by lifting the fed funds rate. The Fed is not expected to address the balance sheet in its statement, but Yellen may get a question about it in her post-meeting press briefing Wednesday afternoon.