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UPDATE 1-Fed's balance sheet not boosting U.S. economy much -Kashkari

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July 28 (Reuters) - The Federal Reserve's $4.5 trillion balance sheet is not doing a lot to boost the U.S. economy at this time and trimming it gradually is the right thing to do, Minneapolis Fed President Neel Kashkari said on Friday.

"I think the big, big balance sheet isn't doing a lot to boost the economy right now, but I do think there are costs in terms of public confidence in the Federal Reserve," Kashkari told a business group in Woodbury, Minnesota.

Kashkari has dissented on both of the U.S. central bank's rate hikes this year, saying he wanted to wait to see if the recent weakness in inflation is transitory. But earlier this week he voted with fellow policymakers on a plan to begin reducing the Fed's bond holdings "relatively soon," language that Wall Street has interpreted to mean September.

"I have been in favor of us slowly bringing that balance sheet back down to a more normal size even though I'm still concerned about inflation," he said. "We can focus on inflation with our short-term interest rate."

Kashkari's remarks shed little new light on the Fed's internal deliberations over why wage growth remains weak and inflation tepid in the face of healthy job growth.

Earlier on Friday, the U.S. government reported that wages and salaries rose 0.5. percent in the second quarter, while a separate report showed the personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge, increased at a rate of 0.9 percent.

The Fed has a 2 percent inflation target.

"The job market continues to be strong, but it's really curious: we had expected to see wages growing more quickly, we had expected to see inflation starting to climb," Kashkari said in his appearance at the Woodbury Area Chamber of Commerce.

"But much to our surprise, and this is a good thing, the job market's been strong; unfortunately wage growth has not been very strong, and there's been very little sign of inflation picking up, so this was the discussion that we keep having."

Citing the lower-than-expected rate at which people between the ages of 25 and 54 are working, Kashkari said he believes the job market can still improve without necessarily creating inflation.

"On some measures the job market still has a ways to go before it is as healthy as it was in '05,'06," he said.

(Reporting by Ann Saphir; Editing by Paul Simao)