Fed Faces Decisions on Shrinking Its Huge Bond Portfolio

Question is whether central bank should end ‘run-off’ program that positioned it to reduce portfolio to $3 trillion by 2020—and manage monetary policy with a larger portfolio in the long run.

After the last recession, the Federal Reserve built up a mammoth $4.5 trillion portfolio of mostly mortgage and Treasury securities in an effort to boost financial markets and the economy. The sum was about equal in value to the total economic output of Japan, the world’s third largest economy.

Officials could soon take up an important debate about how much to let that portfolio shrink.

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