Fed Favors 5-Year Payoff of $1.2 Trillion in Mortgage-Backed Assets

"Such an approach would postpone any asset sales until the economic recovery was well established and would maintain short-term interest rates as the Committee's key monetary policy tool," the FOMC minutes said.

Kansas City Fed President Thomas Hoenig was the lone dissenter in the April FOMC vote that kept interest rates at between 0.0% and 0.25%.

While most Fed members said a slow sale of assets over five years would allow markets time to adjust, others favored a faster three-year approach.

"Most preferred that the agency debt and MBS held in the portfolio be sold at a gradual pace that would complete the sales about five years after they began," the minutes said. "A couple of participants thought faster sales, conducted over about three years, would be appropriate and felt that such a pace would not put undue strain on financial markets. In their view, a relatively brisk pace of sales would reduce the chance that the elevated size of the Federal Reserve's balance sheet and the associated high level of reserve balances could raise inflation expectations and inflation beyond levels consistent with price stability or could generate excessive growth of credit when the economy and banking system recover more fully."