The U.S. Federal Reserve could begin winding down its massive balance sheet sometime later this year in a shift that would make it less necessary to raise the official funds rate, a central banker said on Monday.

Talking to reporters in Australia, St. Louis Federal Reserve President James Bullard said opinions differed within the Fed on ending its balance sheet reinvestment policy and it would take some time to agree on, but he felt it could start later in the year.

Bullard emphasized that the central bank would not be actively selling assets from its $4.5 trillion balance sheet, but rather not replacing them as they mature.

This could be well accommodated by markets, he said, and would put limited upward pressure on Treasury yields.

Markets were wrongfooted somewhat last week when minutes of the Fed's last policy meeting showed policy makers were considering shrinking its assets later this year.

New York Fed President William Dudley said on Friday that the Fed could begin shedding bonds from its portfolio as soon as this year.

The comments temporarily pushed the dollar lower and raised yields on longer-dated bonds.

Economists polled by Reuters and by the Fed itself had generally expected the process to start some time next year.