NEW YORK (REUTERS) - The Federal Reserve will strive to have as little effect as possible on the functioning of financial markets when it eventually begins to shrink its US$4.5-trillion (S$6.4 trillion) balance sheet, New York Fed President William Dudley said on Wednesday.

He said the central bank, which has snapped up Treasury and mortgage bonds over the last several years to stimulate the U.S. economy, will reduce the portfolio in a way that would not have"big consequences" for market functioning.

The Fed has said it will stop topping up its balance sheet, and may even sell assets, some time after it raises interest rates.

(This story is developing)